Did Fed Chairman Ben Bernanke’s Post Fed Action Comments Underscore Financial Market’s Turbulence?

June 21st, 2013 | by Morris Beschloss | Comments

It’s been proven more than once that when Fed Chairman Ben Bernanke holds an occasional press conference in the wake of periodic meetings of the Federal Open Market Committee, the stock and bond markets tend to freak out.

A crucial two-day June 17-18 decision-making meeting culminated with a reasonable decision to maintain the current $85 billion dollar monthly quantitative easing under present fragile economic circumstances. It reiterated the need of maintaining current low interest rates until the Labor Department’s unemployment rate comes down to 6.5%. The rate is currently at 7.6%.

The reiteration of the month’s purchase of $85 billion of Treasury bonds and mortgage-backed derivatives to free up the lending arteries of major U.S. banks has been the leading factor in assuring that the vast purchasing power is available to keep these necessary buyouts’ interest rates from getting out of hand. The consequent positive impact on the stock and bond markets, as well as the moderate comeback of housing, has been at least somewhat responsible for the adroit handling of the nation’s positive monetary environment.

What critics claim could be the ultimate result of the Feds’ current $ trillion per year monetary purchased could come back to haunt us when the Fed ultimately has to unload a good part of the $3 trillion worth of Treasury bonds and mortgage-backed derivatives festering on their seemingly unlimited balance sheet.

But at this time, there are little, if any, inflationary circumstances anticipated Economies all over the world are suffering various degrees of unemployment, a surfeit of commodities, and a slow to middling circulation of money; although there is plenty of it available on both business/industry and financial institutional balance sheets. This is just the opposite of circumstances that ignited the major inflationary surges experienced by America several times during the past 50 years.

Unfortunately, rather than elucidating the positives of keeping the current string of expenditures alive, Mr. Bernanke frightened the monetary, stock and fixed income markets by suggesting, in a post Fed announcement press conference, that the arbitrary end of this program could come sooner than later. Mr. Bernanke should have learned by previous post Federal Reserve Board announcements in the past that the Fed Chairman’s articulation of possibly unsettling circumstances is toxic under current jittery financial conditions.

Once the Fed governors have voted and announced their positions, Mr. Bernanke should let future developments take their course, rather than use the power of his influential position to scare the markets in ad hoc remarks at press conferences.

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