Greg Ip's influential WSJ column today compares and contrasts Bernanke to Greenspan. He recounts Bernanke's speech after being nominated to head the Fed, and a key promise was to "maintain continuity with the policies and policy strategies established during the Greenspan years." But in handling his first financial crisis, he is showing signs of a key break. The initial use of the discount window and lengthening the term of loans as opposed to cutting the fed funds rate is the primary break from the past. Alan Binder has a wonderful quote; "There's no doubt they were trying to draw a distinction between using the main tool of monetary policy, which is the fed funds rate, and aiming the discount rate at restoring the plumbing." However, as Ip notes, if/when Bernanke cuts the fed funds rate, as markets anticipate, the contrast to Greenspan will be less sharp.
All eyes on Jackson Hole. Investors should be asking this key question: HOW MUCH IS PRICED IN? Good luck.
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