TEXT OF STORY

Kai Ryssdal: You can get all excited, too, if you want to. Heck, everybody within shouting distance of Wall Street did today. All because a guy named Donald Kohn gave a little speech this morning which might — just maybe, might — have provided a clue about which way interest rates are headed.

Kohn’s the vice-chairman of the Federal Reserve Bank of the United States, which means you know he chose his words carefully. So when Wall Street heard this sentence:

Donald Kohn: These developments would require offsetting policy actions, other things equal.

…it was “Katie bar the door.” Let me play it for you one more time to make sure you pick up on the word of the day:

Kohn: These developments would require offsetting policy actions, other things equal.

Kohn had been talking about the credit squeeze and a slowing economy, and how the Fed might need to offset that with its policy actions. The market’s translation of “offset” was pretty simple: The Fed’s gonna cut rates, right?

Wall Street’s euphoria was kinda funny, really, since Kohn spent most of his time talking about how bad things are:

Kohn: Heightened concerns about larger losses at financial institutions now reflected in various markets have depressed equity prices and could induce more intermediaries to adopt a more defensive posture in granting credit — not only for house purchases, but for other uses a well.

Two things to remember out of that piece of tape. The first is that last bit he said about “intermediaries” and a “defensive posture” — so far, the credit squeeze has been mostly limited to Wall Street and mortgages. What happens if car loans and credit cards all of a sudden are harder to get?

Number two, and as a way to set up a final comment from Mr. Kohn, repeat after me: No matter how high it goes, the stock market is not the economy.

Kohn: As the Federal Open Market Committee noted at its last meeting, uncertainties about the economic outlook are unusually high right now. In my view, these uncertainties require flexible and pragmatic policymaking. “Nimble” is the adjective I used a few weeks ago in a speech.

Rate cut would be the phrase everybody’s banking on now.