Bernanke Keeps Easing Option While Signaling Economy Improving
The Federal Open Market Committee & Federal Reserve Chairman Ben Bernanke are keeping additional easing on the policy-making table even after upgrading their view on the U.S. expansion.
Stocks rose and Treasuries fell yesterday after the Federal Open Market Committee improved its outlook for growth, reducing expectations the central bank will begin a third round of bond buying. At the same time, the FOMC reiterated in a post- meeting statement that the joblessness rate is "elevated" and "significant downside risks" remain.
Even after the most robust six-month period of job growth since 2006, unemployment persists at 8.3 percent and so the FOMC & Bernanke are holding to their plan to keep the benchmark interest rate close to zero through at least late 2014.
Clearly the FOMC crafted their statement in a way keep their options open. They are not yet ready to say that no more stimulus is needed.
Unemployment will "decline gradually" toward Fed goals and the inflation outlook is "subdued," the FOMC said. Policy makers said they expect "moderate economic growth," compared with a prediction of a "modest" expansion after their January meeting.
But they are signaling that the economy is picking up and the need for intervention may have passed. I think that this marks the point where bond buyer’s market value risk is increasing, where bonds duration risks are increasing, where stocks, equities, are relatively more attractive than bonds going forward.
That knowledge and three bucks will get you a cup of coffee at Starbucks.
Or you could conclude that the Mayans are right an you don’t need to worry about anything occurring after December.
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury