Is The FED Unwinding The Twist?
by. Henry Meier
This article from Politico summarizes my feelings about the latest actions of the FED. Chairman Bernanke prides himself on reducing uncertainty in financial markets by more publicly articulating the FED’s view of economic conditions and the likely direction of interest rates. However, the FED has done such a lousy job of articulating when it plans to wind down its program of buying $85 billion each month in bonds and mortgage-backed securities that his legacy may be to underscore the limits of public communication during times of continued economic uncertainty. This is a really nice way of saying that maybe the FED would be better advised to just keep its mouth shut and build behind closed doors rather than guessing about what it may do in the future.
The latest example of FED gobbledygook came with the release of the minutes of the Fed’s Open Market Committee, which underscored, depending on what view you want to take: (a) that the FED may wind down the bond-buying program as early as the end of this year; (b) that there are other Open Market Committee members vehemently opposed to a premature exit from the program; or (c) that there are members who simply don’t want to be publicly committed to one course or the other at this point.
Lest you think I am being a tad harsh on our FED brethren, here’s what the minutes say about the FED’s likely actions:
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives. (quoted verbatim)
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