Fed of many minds on tapering of bond buys
By John Browne
Published: Saturday, Sept. 21, 2013, 9:00 p.m.
The world waited for the Federal Reserve's announcement last week on its intentions with the possible tapering of quantitative easing.
Most pundits expected an initial tapering of some $15 billion to $20 billion from the Fed's $85 billion-a-month underwriting of the American economy and Treasury bond and mortgage markets. As I wrote previously, however, the Fed is in a fix and likely would do nothing.
They did nothing. For the rest of the day Wednesday, the markets responded positively with the Standard & Poor's 500 setting a record high and gold and silver prices surging. By Thursday, however, the S&P dropped back and new concerns arose over the weakening of the dollar.
So was the Fed decision a measure of a sick economy? Or could it have been internal disagreement that forced the newly politicized Fed to resist pressures and expectations to start tapering?
In his announcement, Fed Chairman Ben Bernanke seemed to lean toward a weak economy. He alluded surprisingly to the fact that the “real” rate of unemployment was above the 7.3 percent official rate. “Joblessness is above acceptable levels,” he said. If the entire 11 million Americans who are unemployed are counted, the “real” rate is actually an unmentionable 13.7 percent.
Bernanke also expressed concern over falling participation rates, partly caused by an aging population. Workers working to an older age create upward pressure on youth unemployment. This portends serious political problems ahead as Baby Boomers — the largest generation — get older.
Although he indicated gross domestic product growth was disappointing, he named it as just one of three key measures alongside unemployment below 6.5 percent and inflation at below 2.0 percent. Then proceeded to cloud these targets by adding smoke: “There is no fixed data or calendar. ... But (tapering) could begin by late 2014.”
As he continued, it became more apparent that the Fed has no clear plan. Possibly there was internal disagreement as the Fed transitions from crisis management to economic management.
It is increasingly clear that the recovery and highly charged markets rely crucially on quantitative easing. Indeed, they are likely unable to handle the reality of America's economic and financial position without experiencing a collapse.
During questions, Bernanke mentioned the great power of the Fed. He was right. It may seem remarkable to some that the Fed has a monopoly on the creation and pricing of the World's Reserve Currency. It may appear scandalous that the Fed — a private company with $3.4 trillion in assets that is subject neither to taxation nor audit — should hold such enormous, unaccountable power.
More worrisome, the “independent” Fed has become politicized. Soon President Obama will appoint some seven replacements for retiring Federal Reserve Open Market Committee members. Potentially, the Fed could become party politicized. Perhaps this is what led Bernanke to uncharacteristically emphasize how the Fed was nonpolitical.
Another key reason Bernanke did not begin tapering could be that he did not want to pre-set a policy for his successor. Only time will tell if it was that, internal disagreement, a pessimistic view of the economy or all of the above.
John Browne, a former member of Britain's Parliament, is an economics columnist for Trib Total Media. Contact him at email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Must-see works to catch before Carnegie exhibit ends
- Penguins stave off Ducks’ shooting barrage to win in shootout
- Trade to Penguins caps frenetic period for winger Stempniak
- Penguins notebook: Maatta leaves lasting impression with Selanne
- Turnpike’s chief compliance officer resigns, cites family matters
- Greensburg woman accused of assaulting nurse in Excela Health Westmoreland Hospital
- St. Molokai parish ruling imminent
- Donor name to be stripped from Penn Hills library
- Steelers restructure Brown’s contract to become salary cap compliant
- Gorman: Pitt should be happy with Dixon
- Former Pitt coach Majors in stable condition after heart procedure