From the Wall Street Journal
Excerpts
The dollar has fallen and stock and bond markets are rallying worldwide,all because Ben Bernank told us what he and other Federal Reserve officials have, quite frankly, been saying ever since he laid out plans to taper bond purchases on June 19. The Chairman’s message then, as now, was that while the Fed might start gradually reducing its asset-buying, the broad thrust of loose monetary policy – and particularly record-low interest rates – will last for a long time.
Wall Street and Bernanke Dance
Investors want loose monetary conditions to continue indefinitely and the Fed wants bond market rates low enough and stock prices high enough to support economic growth. And yet tapering must go on. So the Fed has to send soothing messages to its dance partner. And with the Dow Jones Industrial Average now trading all the way back at record highs, it seems the Fed has finally succeeded in assuring investors that they won’t be left alone on the floor.
The more the Fed ties itself to the market’s interests, the more difficult that withdrawal becomes without prompting another, destabilizing selloff. Meanwhile, in this post-crisis age the Fed is extra- sensitive to the risks of fueling bubbles in asset markets. Who’s to say the stock market, which is performing far more positively than the underlying economy, isn’t already experiencing one?
Excerpts
The dollar has fallen and stock and bond markets are rallying worldwide,all because Ben Bernank told us what he and other Federal Reserve officials have, quite frankly, been saying ever since he laid out plans to taper bond purchases on June 19. The Chairman’s message then, as now, was that while the Fed might start gradually reducing its asset-buying, the broad thrust of loose monetary policy – and particularly record-low interest rates – will last for a long time.
Wall Street and Bernanke Dance
Investors want loose monetary conditions to continue indefinitely and the Fed wants bond market rates low enough and stock prices high enough to support economic growth. And yet tapering must go on. So the Fed has to send soothing messages to its dance partner. And with the Dow Jones Industrial Average now trading all the way back at record highs, it seems the Fed has finally succeeded in assuring investors that they won’t be left alone on the floor.
The more the Fed ties itself to the market’s interests, the more difficult that withdrawal becomes without prompting another, destabilizing selloff. Meanwhile, in this post-crisis age the Fed is extra- sensitive to the risks of fueling bubbles in asset markets. Who’s to say the stock market, which is performing far more positively than the underlying economy, isn’t already experiencing one?
