Fed Seeks to Calm Markets

In an apparent bid to reassure markets troubled by hawkish rhetoric from the Federal Reserve, vice-chairman Don Kohn on Wednesday said the Fed would be ”flexible and pragmatic” in responding to the renewed stress in financial markets.

Mr Kohn said that the increased ”turbulence” of recent weeks had ”partly reversed some of the improvement in market functioning over the late part of September and in October.”

He added: ”Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses.”

His comments suggest that the Fed leadership recognises that the risks to growth have increased since the last policy meeting. They indicate that the Fed would consider cutting rates in December if market conditions do not improve in the meanwhile. However, Mr Kohn stressed the high degree of uncertainty over the outlook.

Mr Kohn’s comments came as data from the Commerce Department showed that new orders for manufactured products fell for the third month in a row in October as businesses held off from making investments.

The 0.4 per cent decrease in orders for durable goods was worse than economists’ expectations of a 0.1 per cent fall. It comes after a drop of 1.4 per cent in September and 5.3 per cent in August. Excluding transportation, orders were down even more sharply by 0.7 percent.

Non-defence new orders for capital goods excluding aircraft, a measure of business investment, fell 2.3 per cent, the biggest drop since February. Most of the fall in non-defence capital goods orders came from a 15.6 per cent drop in orders for computers and related products and a 22.6 per cent fall in communications equipment orders.

Figures on sales of previously owned homes in October are out at 10AM, and are expected to remain flat after recent steep falls.

Fed Seeks to Calm Markets

Financial Times
11/28/2007 6:36:36 AM