For months the game of guessing exactly when and by how much the Fed would reduce their program of quantitative easing took precedence over everything else. The word “taper” had become as commonplace as stock market and on Wednesday the Street believed they gamed this one just right.
In last week’s column I mentioned that the consensus forecast around Wall Street was that the Fed would reduce bond purchases by $10-$15 billion a month. I added the caveat that in order to do so, the Fed would have to believe the economy was growing fast enough to warrant such a cut. Chairmen Ben Bernanke and the central bank’s FOMC members clearly do not think the time is ripe for tapering at this point.
Clearly, Wall Street was not paying attention to what the Fed and its board members have been saying over the last few months: the time to taper will depend on the strength of the economy and employment. I don’t think there is an economist in the country who would say the economy is growing at more than a modest rate. On the unemployment side, the numbers are dropping but also at a modest rate.
“But, but, didn’t you say it was going to happen in September?” asked a media reporter during Ben Bernanke’s press conference after the non-announcement.
Bernanke simply reminded the fellow in his gentle, matter-of-fact way that he had never said the Fed would begin to taper in September. Once again he reiterated that the decision always depended on the strength of the economy. Is that so hard to understand?
Wall Street chose to simply disregard the facts. Instead, they did what they do best—bet on the odds. Fed watchers spun stories about why it would have to be now. Others chimed in with their thoughts and before too long what was once fiction becomes fact until it doesn’t. It is an object lesson in why I advise readers to ignore the day-to day noise that flows out of Wall Street.
So what do we know? The economy is not as strong as most thought, although it is still growing. We know that the Fed is worried, according to the testimony of its chairman, by the fiscal showdown that is approaching once again in Washington.
Just a look at today’s headlines is enough to realize the utter circus that we happen to call a congress. The House passed a temporary funding measure to keep the government from shutting down, but attached a Tea Party-backed measure to overturn the nation’s new health care law. No one in Washington, including the lawmakers that just passed that bill, believes it has any chance in resolving the debt ceiling.
It is simply more posturing and more theatre by the Republican majority in the House that appears to be have lost touch with the majority of the nation. Do not, dear reader, allow yourself to be drawn in once again to these eleventh hour dramas playing out in the nation’s capital. Stay invested, ignore the sound bites and keep your eye on the long-term, which is up.