“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 – at least that was the expectation. It seems the consensus opinion in the what-will-the-Fed-do guessing game was for the Committee to start cutting back, even a small amount, to send a message that QE was going to end.
There was just one problem: the facts and the Fed did not measure up to a cut in bond purchases (yet). Could you just feel how upset participants were as the markets were heading toward all-time highs? And 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 that the Fed is politicized, they clearly thought independently once again and made a decision based on the data and facts presented to them. Thankfully, they didn’t listen to the crowd, whose rhetoric is spiked with bias.
The fact is we have ONE Federal Reserve, ONE Chairman and ONE Committee that makes a decision for the greater good. Some believe (falsely) that 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. But that was not the case.
Let’s take the Fed at face value. Did you listen to Bernanke’s press conference? A straight shooter if there ever was one. He knocked back every speculative question with boldness and showed a 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 a few years ago? 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, preemptive 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, it was about shoring up confidence in financial markets at a time when trillions of dollars of wealth were vaporized by a nasty credit and housing bubble that hit far and wide. Remember how bad you felt in early 2009 when your retirement and investment accounts were nearly obliterated? This past week was the five year anniversary of the Lehman tragedy, and the further away in time we get from that debacle the better we will 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. They are paying attention to the data, not trying to read tea leaves.
Nevertheless, opinions about the Fed permeate the media daily, skewing our view. Bernanke ranks as an expert on the causes and effects of the Great Depression. Another great depressions wasn’t going to happen 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, and the Fed will monitor key economic data and cut back on bond purchases when THEY are ready for it. And life will go on.