“Every man has a right to his own opinion, but no man has a right to be wrong in his facts.” – Bernard Baruch
Wow! Such disappointment Wednesday after the Fed failed to deliver on the ‘promised’ taper. Well, at least that was the hope or expectation from the gallery. It seems the consensus opinion in this guessing game was for the Committee to start cutting back, even a small amount – to send a message that QE was going to end. Just one thing: the facts and the Fed did not measure up to a cut in bond purchases (yet). But could you just feel how upset participants were as the markets were heading toward all time highs?
All for the wrong reasons. Talk about shock and awe! I’m being sarcastic here but I’m trying make a point – while many believe the Fed is politicized, they clearly though independently once again, made a decision based on the data and facts presented to them, and thankfully they won’t listen to the crowd whose rhetoric is spiked with bias.
The fact is we have ONE Federal Reserve, ONE Chairman and ONE Committee who makes a decision for the greater good. Some believe (falsely) the Fed has lost credibility, to which I say only if they caved in to the cries and pleas of unqualified opinions about monetary policy. Thankfully that was not the case.
But let’s take the Fed at face value. Did you listen to the Bernanke press conference? A straight shooter if there ever was one. He knocked back every speculative question with boldness and willingness to stick to his plan. He did not waver from anything he said last month, three months ago or even six months ago. It’s easy to read, so why even bother guessing?
I can appreciate the tough job of the Fed and considering how far they have come in five years, under no uncertain terms will they fail. Remember how far behind the curve they were? Maybe now they are ahead of it and trying to head off the next train wreck. The markets, economy and global conditions have come too far to let early pre-emptive moves jeopardize the recovery. Now, I know there are opinions about the efficacy of QE and whether or not it helps the economy.
But frankly it never was about that, rather shoring up confidence in financial markets at a time when trillions of dollars of wealth were vaporized by a nasty credit and housing bubble, bursting that hit far and wide. Remember how bad you felt in early 2009 when your retirement account or investment account was nearly obliterated? This past week was the five year anniversary of the Lehman tragedy, and the further away we get in time from that debacle the better we feel.
And that is the point of Fed intervention. Chairman Bernanke is a master of psychology and uses the tools at his disposal to keep fear down. He’s always had a plan to get in and get out, and a new Fed Chair early next year won’t likely be bigger than the plan. Clearly cutting back too early, which may jeopardize the recovery is not in the plan. Further, the Fed has been very transparent about their goals and expectations, so just paying attention to the data and what they are looking for is not trying to read tea leaves.
But opinions about how, why and when permeate the media daily and our view of the Fed becomes skewed. Bernanke ranks as an expert in knowing about the Great Depression, it’s cause and effect. That wasn’t going to happen a second time on his watch, but five years ago that seemed to be where we were headed.
Time for my opinion, because I have yet to deliver it. Markets will do their thing, the Fed will monitor the key economic data and cut back on bond purchases when THEY are ready for it. Life will go on.