Will the Fed Cut? Wall Street Is Not Main Street

Today's Wall Street Journal reports:

"Many on Wall Street are more pessimistic, and believe the Fed will still have to cut interest rates sharply . . ."

Here's Wall Street's problem (which many of my friends here on the West Coast also have).  Wall Street does not understand that Wall Street is not Main Street.  From the perspective of a stock market investor, things look bad and the Fed should cut.  But from the perspective of a business owner or executive, things are not so bad.  Customers are still spending (outside of new home construction).  Business goes on decently.  Main Street does not need more stimulus at this point.

But Main Street has no pundits going on CNBC talking about what the Fed should be doing.  The good news, however, is that the Fed has ears on Main Street.  Every Federal Reserve Bank, and every branch of every Federal Reserve Bank, has a board of directors.  Each board member reports monthly on his or her area of the economy, and many of them also watch a related part of the economy.  They don't track the economic statistics--the Fed's staff does that--but these directors talk to their corporate contacts about how business is going.  Those anecdotes are funneled up to the Fed, culminating in the Beige Book.

The Fed won't ease unless it hears that Main Street is not able to get the credit that it's used to.  Right now, the Fed is not getting that word, based on the conversations I'm having with my clients and contacts.  Bottom line: don't look for a rate cut, and don't pay too much attention to Wall Street.

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Wall Street applauds Fed's bigger-than-forecast cut
Dow up 2.5%; S&P 500 ahead 2.9%; Nasdaq Composite rises 2.7%
By Kate Gibson, MarketWatch
Last Update: 4:31 PM ET Sep 18, 2007Print E-mail Subscribe to RSS Disable Live Quotes
NEW YORK (MarketWatch) -- U.S. stocks surged Tuesday, sparking the Dow's greatest one-day rise in nearly five years, after the Federal Reserve gave Wall Street what it's been clamoring for, cutting benchmark interest rates even more than most analysts had predicted.
"The market is acting like [Federal Reserve Chairman] Ben Bernanke just cured cancer, and I can tell you, he didn't," said Art Hogan, chief market strategist at Jefferies & Co. "This is typical of the knee-jerk reaction to what we perceive to be good news."