Industry News

Fed official advocates ‘nimble’ response to turmoil

Investors see increased likelihood of Dec. 11 interest-rate cut

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Stocks soared Wednesday after Federal Reserve Vice Chairman Donald Kohn said the Fed must be "nimble" in responding to turmoil in financial markets to preserve access to loans for consumers and businesses. Investors interpreted Kohn's comments as a sign that the Federal Reserve will cut short-term interest rates when it meets on Dec. 11, although Kohn said the views he expressed were his own. In a speech to the Council on Foreign Relations in New York City, Kohn said that while he's aware of the "moral hazard" of attempting to alleviate the pain of troubled homeowners by cutting interest rates, there are larger economic issues at stake. "To be sure, lowering interest rates to keep the economy on an even keel when adverse financial market developments occur will reduce the penalty incurred by some people who exercised poor judgment," Kohn said. "But these people are still bearing the costs of their decisions and we should not hold the economy hostage to teach a small se...