Is Bernanke feeling blue about the U.S. recovery?

Perhaps. But probably not.

In the end, “September taper” never was. The Federal Open Market Committee (FOMC), the Federal Reserve’s rate-setting body, announced on Wednesday it will keep the pace of its monthly asset purchases steady, at $85 billion a month in Treasurys and mortgage-backed securities.

The vast majority of Fed watchers had their money—often, literally—on a taper decision. So what possessed the Fed, which normally abhors surprises, to pull this trick on investors?

After parsing the FOMC statement and listening to Bernanke’s post-meeting presser, I have a glass half-full interpretation. I think the decisions is less about the health of the U.S. recovery and more about the Fed’s inability to predict that its taper talk would push up long-term rates to the extent that its has and that Congress continue to squabble about fiscal policy.

Here is where I get my hints:

1. A close comparison of how the FOMC statement changed from the July meeting shows that the Fed actually felt more optimistic about the economy today than it did two months ago. In July it described the pace of economic growth as “modest.” In September, it upgraded that assessment to “moderate.”

2. The FOMC statement noted that “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.” Bernanke confirmed during the press conference that “tightening of financial conditions,” refers, indeed, to the steep rise in long-term bond yields and mortgage interest rates witnessed since the Fed mentioned the possibility of tapering back in May. The chairman called such movements “unwelcome.” Bernanke added that the FOMC is “somewhat concerned” about mortgage rates in particular, which could weigh on the housing recovery.

3. The FOMC also noted that “fiscal policy is restraining economic growth.” This isn’t exactly new: The Fed has long been complaining that Congressional battles over the deficit, as well as state and federal spending cuts, have been watering the positive effects of monetary policy stimulus. Today, though, Bernanke specifically mentioned the looming threat of a federal government shutdown and, even more so, another Congressional showdown of the debt ceiling as causes for concern.

In short, the economic data, taken in isolation, might have been good enough to satisfy the FOMC that taper could begin. After all, the labour and housing markets have held up pretty well since Bernanke first mentioned the possibility of scaling back asset purchases. The two biggest bumps on the way to tapering, it seems, are Congress and the Fed itself.

This article appeared first on CanadianBusiness.com




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Is Bernanke feeling blue about the U.S. recovery?

  1. I am going to borrow from Einstein.

    Insanity: Doing the same old Bernanke economics over and over again and expecting better results.

    Fact is Bernanke was one of the major cause of this depression. In 2006 he did the Berbanek Doctrine of print (electronic counterfeit) of money for governemtn debt. In 2007 legitimate lenders topped lending money for returns below inflation+taxes for a credit crisis and lay offs started. 2008 was the crash. And after inflation, we have not recovered and likely will not either, as this is fraud when pyrmid debt ponzi added with currency inflation is how governments address their massive overspending and bailout corruptions.

    This is why government can’t solve the economics problems as their statism bloat and tax greed caused the problems. They exceeded taxation elasticity and are still in denial seeking a war to blame the whole mess on. As a war would let them unwind the hyper inflation this will eventually cause.

    QE => Electronic no value counterfeit money to buy US Treasuries no legitimate lender would buy as the return is a negative value investment.

    Government knows this pyramid ponzi fraud scheme with debt and currency is failing, that is why they really want a war. Delinquent failing debtors with bombs can have a mean bite. History repeats too as this is what drove Nazi into Poland, Ukraine, Austria, Czechoslovakia and others, needed to have a larger market for a over printed currency.

    But war will not solve the J CU PIIIGGGS in debt countries from failing. They will fail, just a mater of time now.

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