The days are getting shorter now, football closer — at least the Fed can’t take that away from us. Given its fantastic bungling this week, it might try.
First, let’s get the fairy tales out of the way. No, President Obama has not asked Fed Chair Ben Bernanke to leave; Bernanke is exhausted (which may explain some of this week), and orderly competition to succeed him began in January. And no, the market wrecks this week do not invalidate the quantitative easing (QE) campaign. It was exactly the right thing to have done.
Bernanke is an American hero, his inventiveness and courage without parallel in our peacetime history. However, the skills and instincts necessary to save us in the post-Lehman event are completely different from those required to manage a gradual tightening of policy.
Bernanke on May 22 did an expert and appropriate job of mumbling. Markets needed to be warned that QE might taper in the next several months, and be reminded that someday QE would end altogether, and in the long run Federal Reserve policy would normalize. The Fed chair’s muffled jawbone took the 10-year T-note from a broad range 1.7 percent-2.05 percent into June’s 2.08 percent-2.25 percent, mortgages just above 4 percent.
The economy may or may not be self-sustaining, but asset prices in 2013 might have begun to pre-bubble. Maybe. New Fed Gov. Jeremy Stein began to thump the bubble tub immediately on arrival. Household net worth jumped $3 trillion in the first 90 days of the year, all on stocks and houses. The delicate conundrum: Rising asset values were a principal purpose of QE and have the economy doing better; at what point do they become a bubble? Hedge the bet by bubble-burble.
The June Fed meeting concluded on Wednesday, and the written statement was harmless. Then in the post-meeting press conference Bernanke gave the most unfortunate public performance by a chairman in my memory. He is compelled to transparency and specifics of future intentions, which made QE work, but are disastrous in a tightening cycle. And he clearly does not understand why.
– See more at: http://www.inman.com/2013/06/21/fed-bungle-may-prompt-higher-mortgage-rates/#sthash.B3LcAU5U.dpuf