“As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate,” said Federal Reserve Chairman Ben Bernanke to Congress last Thursday.

The stock market dropped immediately following Bernanke’s comments.  The DOW fell 145 points from its intraday high.  Apparently, Bernanke’s promise was not good enough.

Wall Street wants more than talk from the Fed…they want action.  They want QE3.  They want the Fed to flood financial markets with a torrent of liquidity and buoy stock prices up forever and ever.  Quite frankly, that’s what the Fed, under both Greenspan and Bernanke, has trained Wall Street it always does.

Here at the Economic Prism we’re confident the Fed won’t ultimately disappoint Wall Street.  However, for now, Wall Street will have to be patient.  Perhaps the DOW will have to fall 2,000 more points before Bernanke opens the sluice gates.

More importantly, we find all this expectation and speculation on Fed monetary policy to be a distraction.  Unquestionably, Bernanke’s assurance that the Federal Reserve’s willing and able to provide money to support the financial system sounds well and good. Continue reading →