A Bernanke Put?

The Fed's decision to keep out mention of the tightening bias took the markets by surprise, considering that the latest inflation and growth figures paint a mixed picture. One wonders if Bernanke's decision to drop the bias has anything to do with the sub prime debacle by introducing a Federal Reserve put option à la Greenspan. After yesterday's events, the futures market raised the odds of a quarter point cut by mid year. Although we are not out of the woods on the inflation front yet, the tendency is towards a softening, considering weaker commodity prices and the drop in housing, compounded by the general economic slowdown. Put or no put, we have seen how effective they are (take the internet bubble as a prime example). The danger comes from getting carried away by such "cost free" options, the private equity put being another prime example. Nevertheless, in the natural order of things, it does make sense that the tightening bias is no longer mentioned (it was going to happen some day), the slowdown will inevitably take its toll on inflation.