I indicated earlier that I would counsel against moving today, for if we do, in my judgment we will break whatever developing pattern for equity price stability may be currently emerging, at least temporarily. Were we to cut rates, there doubtless would be an initial sharp rise in stock prices as less sophisticated buyers enter the market. However, a move today would remove the constructive ambiguity about monetary policy from the markets. As a consequence, after the initial price surge the more sophisticated traders could well be selling, with a distinct possibility that stock prices would fall markedly, essentially undercutting the nascent stabilization that may be in the process of forming. We would have used up some significant monetary policy ammunition without realizing any short-term stabilizing benefits. Long term, of course, it doesn’t matter much unless the failure of achieving short-term stability sets us on a path with long-term consequences.
To repeat, we have a credible intermeeting window over the next 10 days. Let us employ the time to monitor markets, but especially to look for evidence of emerging stability in capital goods orders. I might say in closing that I know all of you in the Reserve Banks will be working on Beige Book commentary shortly. And I would request that you make a special endeavor to see if you can gain some insights on what is going on in capital spending within your Districts and what the prospects are for a stabilization and hopefully an upturn.