Maybe our title should be, “Bernanke, et. al. Speak, Repeatedly”. For the most part, the message is the same: the tapering of QE will be data-derived and dependent on economic fundamentals in the United States, unemployment stats in particular.
The Fed Chair addressed The National Bureau of Economic Research conference today. His topic was a history of the first one hundred years of the Federal Reserve. In his address he was quoted as saying, “Central banking doctrine and practices are never static.” Considering all we have experienced (and continue to experience) in terms of Fed policy moves, there is no question as to the veracity of Mr. Bernanke’s statement.
After his presentation the Fed Chairman took questions from the audience (no media, mostly economists) some of which focused on the tapering and end of quantitative easing with really no new information being imparted. Prior to the talk the Fed had released the minutes of the June Open Market Committee meeting. According to the Wall Street Journal about half of the participants in a pre-meeting survey felt that the bond-buying program should be ended this year. That was the point of view before the meeting. However, the Journal said in the minutes of the meeting “that the officials articulated a jumble of views.”
Bottom line–Bernanke, et. al., have spoken and nothing new or particularly dreadful was revealed.
I do think, based on recent volatility in the market, there may be some confusion on the part of the public, some institutional investors and segments of the media as to the difference between tapering (winding down of the bond buying program) and tightening (intentional moves on the part of the Fed to slow the economy by pushing rates up). In fact, last night I heard one of CNBC’s Asian anchors use “taper” and “tighten” as equivalents in the same sentence.
Importantly, what we are dealing with is tapering; tapering that may be very gradual and not even begin before the end of this quarter or the beginning of the fourth quarter. Also, unless the economy turns very hot (a good thing, no?), it will be a long time before we start obsessing about “The Dreaded Tightening.”
Judging by the response today of the ten-year treasury (up 3 basis points in yield to 2.57%) the bond market may be getting the message, at least for the time being. The stock market, as represented by the S & P 500, is just about 1% from its all-time high after a paltry 6% correction.
Oh well, I guess we have to get our focus back on the really important stuff, “Earnings Season.”
What do you think?
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