In a speech today in the Kansas City Fed's Jackson Hole, Wyoming conference on Housing, Housing Finance, and Monetary Policy, Chairman Ben Bernanke addressed the current credit crisis and gave some guidance about the Fed's actions in response to it.

He indicated that the Fed will "act as needed" to prevent the credit crisis from damaging the economy. In addition, the Fed will be focusing on the "timeliest indicators" as to the state of the economy and indicated the limited usefulness of data from periods prior to the crisis.

At the same time, Chairman Bernanke indicated that "It is not the responsibility of the Federal Reserve-nor would it be appropriate- to protect lenders and investors from the consequences of their financial decisions." This is consistent with his prior statements.

The speech gives the Fed and Bernanke more wiggle room to cut rates if they feels that it has become a necessary step to deal with the crisis. In essence, the Fed is no longer limited by economic data prior to the August crisis period and can rely much more on its own forecasts.

If the need arises, the Fed can easily cut its Fed Funds rate at the September meeting. However, this action is not guaranteed. The Fed seems to be adopting a wait-and-see attitude with the ability to move quickly if necessary.

Those expecting a bailout like the one in 1998 with a substantial decrease in the Fed Funds Rate may be disappointed. The Fed seems to be implying that this will not occur unless there is a major deterioration in the economy or the credit crunch worsens. The Fed Chairman wanted to assure the market that he will not allow the situation to spiral out of control, and the speech seems to have accomplished this purpose.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.