Fed: We didn’t know about SocGen trades

As we suspected earlier today:

The Federal Reserve was not aware that Societe Generale was unwinding trades in Europe on Monday that had been amassed by a rogue trader at the firm, a Fed source said Thursday.

The unwinding presumably didn’t help turmoil in overseas markets on Monday. The sharp market declines in Europe and Asia was cited by Fed watchers as the critical reason that the Fed engineered an emergency rate cut only one week before their formal meeting.
Federal Reserve board chairman Ben Bernanke was watching the markets closely on Monday, a government and trading holiday in the U.S., before convening a video conference call with the Federal Open Market Committee later that evening. The FOMC decided to cut rates by three-quarters of a percentage point to 3.5%. The decision was announced on Tuesday morning.

Economists said the Fed has good reason to worry about falling stock prices. If the weakness in overseas stocks spilled over into the U.S. market, the wealth outlook for U.S. households would have darkened because of already dropping home prices, economists said. This could curb demand at just the time that the economy sputters on the edge of a possible recession.

Analysts initially attributed the plunge in global stock markets on Monday to fears that the U.S. may be in a recession. But now it appears that something else might have been afoot…

’nuff said . . .



Fed didn’t know about SocGen trades on Monday
Greg Robb            


MarketWatch, 2:33 p.m. EST Jan. 24, 2008

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