A long year of lessons for the federal reserve

When U.S. Federal soldier Reserve functionary gathered for their annual conference in Glenda Jackson Hole, Equality State, in Aug of last year, Bear Stearns shares were trading at well over $100. The Fed's benchmark interest rate was 5.25 percentage, more than two-base hit where it base now, and oil cost about $70 a  gun barrel.

Twelve calendar month later, Bear Stearns is gone, as is about $400 one million million from the balance sheets of banks worldwide. The legendary oilman T. Boone Pickens thinks the days of oil under $100 a gun barrel may be gone, too. Look back at the 2007 conference in Glenda Jackson Hole provides some cringe-inducing moments. In his address at the mount resort, Ben Bernanke, the Federal soldier Reserve president, declared that the telephone exchange bank was ready to act to shield the economic system from the recognition crisis but would not save investors who had made bad  pick.

"It is not the duty of the Federal soldier Reserve - nor would it be appropriate - to protect lenders and investors from the effect of their financial decisions," he said, words that now seem to ring hollow in light of the Fed's role in rescuing Bear Stearns from bankruptcy in March. Now, Bernanke is hoping the Fed will not have to act again.

The conference, organized by the Federal soldier Reserve Bank of kansas City, typically draws lead economists and telephone exchange bankers from about the world and focusing on the hot subject of the day.

The theme last year was lodging, home funding and monetary policy. Much of the treatment and argument centered on hypothetical concerns about how hard the lodging downturn might hit the economic system. Now that many of those dire predictions have come true, the focus has turned toward how to fix those job.

Bernanke will begin the 2008 conference with a address Friday on "Financial Stability," a broad topic that could encompass anything from regulatory reform to international cooperation among central banks.

If his recent comments to the U.S. Congress are any guide, the speech will likely have a heavy helping of uncertainty about when the housing market will finally recover from a bust that has dragged down U.S. Home prices by 20 percent in some areas.

What has gone wrong for Bernanke and company in the past year is well documented. The Fed was roundly criticized last August for being slow to recognize the magnitude of the housing crisis and its potential for wreaking havoc on the economy.

Economists like Martin Feldstein, the long-time head of the National Bureau of Economic Research, chided the U.S. Central bank last summer for not lowering interest rates quickly enough to counter the housing downdraft and stave off a recession.

In March, the collapse of Bear Stearns left the Fed open to questions about whether it was encouraging Wall Street's excesses by coming to the rescue and orchestrating the fire sale of Bear Stearns to JPMorgan Chase.

Bernanke may find a more complimentary audience this year. He has managed to defuse some of the criticism by finding creative ways, besides lowering interest rates, to ease credit constraints. The Fed has started to use lending facilities that have helped to bolster confidence in debt-laden financial companies - and added a half-dozen new acronyms to the Wall Street lexicon.

The past month has brought some much-needed relief on the inflation front as oil prices came down from a July peak of above $147 a barrel to trade below $115. While the price is still well above where it was a year ago, and inflation remains above the Fed's comfort level, it certainly takes some pressure off Bernanke to raise interest rates.

The downtrodden dollar has also made a solid comeback in recent weeks, quieting speculation about central bank intervention in the currency market. Goldman Sachs economists said Thursday that the dollar had reached a bottom, in part because of weakening economic trends in Europe and Japan that had made the U.S. Currency more attractive in comparison.

"The dollar lows are almost certainly behind us," Thomas Stolper, a currency strategist at the firm, wrote in a note to clients. "Too many underlying factors have started to work in favor of the dollar to dismiss the recent bounce as temporary."