The Fed decision: Chairman Ben walks the Greenspan line

The Fed decision is out: the FOMC decided not to raise rates. This was anticipated by just about everyone. As I predicted in my post last night, The October Surprise: Poll News May Be More Important Than Fed News for the Stock Market , there was no news, just noise. The pundits are going to have a hard time finding a surprise in this announcement.

Like the old Johnny Cash song, "I Walk the Line," Chairman Bernanke is walking the same line as Alan Greenspan. That is the fine line between the Inflation Hawks and Recession Doves. He has to maintain credibility with both. Dr. Greenspan did this beautifully. Chairman Bernanke is following his lead by indicating that he is going to continue to do more of the same with interest rates: nothing!

He placates fears of a recession by demonstrating that he understands the importance of the deflating housing bubble on the economy and stands ready to do something if it gets out of hand. However, with strength in the economy, he sees no reason to do anything at this time.

He also demonstrates his inflation-fighting credentials by focusing on core inflation but emphasizing that he expects the slowing economy to take care of this problem. This is a difficult position for the hawks to criticize given the recent declining inflation numbers.

In short, he is walking that fine line that characterized the Greenspan tenure at the Fed. I expect that unless a major shock or crisis occurs, Chairman Bernanke will probably continue this into the 2008 election. I discussed this in my earlier post, What the Bookies Are Saying About the Upcoming Bear Market if you want to read more.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.