2012.08.01 23:16:53 HEARD ON THE STREET: Fed Alert, But Puts Off More Action

By Justin Lahart

Here's guessing that Federal Reserve Chairman Ben Bernanke felt pretty
relieved Wednesday.

Consider: On a day when many observers expected the Fed's
policy-setting committee would do something--if not more bond buying,
then at least a lengthening of its commitment to keep overnight rates
low--the committee did nothing at all. And the Dow Jones Industrial
Average fell all of 32.55 points.

Not a bad trick, especially considering that earlier in the day the
Institute of Supply Management's manufacturing gauge showed that U.S.
factory activity contracted for a second month in July.

It goes to show that the main event in central banking for markets
this week never was the Fed but the European Central Bank meeting
Thursday. Investors are waiting to see if the ECB will, as President
Mario Draghi promised last week, "do whatever it takes to preserve the
euro," and they weren't about to sell in front of that.

All of which may have entered into the Fed's calculus. A new
bond-buying program launched ahead of either an ECB disappointment or
positive surprise would have been a waste of firepower. Uncertainty
about what Friday's jobs report will bring only adds to the argument
for the Fed biding its time.

And the Fed did make clear that it is ready to pick up the pieces if
it has to. In the most substantive change it has made in its
postmeeting policy statement, it said it would "closely monitor
incoming information on economic and financial developments" and would
take additional steps to prop up the economy if things go badly.

It's almost as if the Fed has written investors an insurance policy--a
put, to use the finance term--against falling markets. Why does this
seem so familiar?


Write to Justin Lahart at justin.lahart@wsj.com


(TALK BACK: We invite readers to send us comments on this or other
financial news topics. Please email us at
TalkbackAmericas@dowjones.com. Readers should include their full
names, work or home addresses and telephone numbers for verification
purposes. We reserve the right to edit and publish your comments along
with your name; we reserve the right not to publish reader comments.)


Subscribe to WSJ: http://online.wsj.com?mod=djnwires


(END) Dow Jones Newswires

August 01, 2012 17:16 ET (21:16 GMT)