Yesterday we wondered whether Federal Reserve Chairman Ben Bernanke, in his speech to Congress, would come out in support of his colleagues (and the banks) or whether he’d speak with one eye on his legacy. Turns out he’s managed to do both!
We’re not going to dwell too much on Bernanke’s remarks today. After all, there’s the collapse of Australia’s mining boom to reckon with.
But given his utterances determine the ‘wealth’ of investors around the world, it’s worth looking at just what he said. If the Federal Reserves job is to inspire confidence, and confidence creates liquidity, then Ben Bernanke’s speech last night didn’t do the job.
As you can see in the one-day chart of the S&P500 below, it sold off soon after the market digested his prepared comments, which the Federal Reserve released at 10am. That market analysis has come to dissecting the words of a central planner to gauge the stock market’s reaction just goes to show how broken our system of finance is. It is sad and embarrassing. Not for Bernanke though.
‘Ultra-low interest rates are not good for an economy. More normal interest rate levels signify a healthy economy. Our aim to is to get the economy healthy and return interest rates to more normal levels. In order to do that we need to keep interest rates really low for a really long time.’
Really, that’s what he said. You can read the long version here if you like.
No wonder the market is losing confidence. Bernanke is trying to give the impression he’s concerned about the destabilising effects of low interest rates (legacy protection) while also trying to tell the market that low interest rates will be around for years.
Bernanke’s outta here in January 2014. He knows he’s leaving a ticking bomb for his successor…after all, Greenspan did it to him in 2006. Who will the successor be? If the banks have any say in it, we’ll be looking at Lawrence Summers or Tim Geithner. Janet Yellen, the Federal Reserves current Vice-Chairman, is the favourite, but there may be a surprise.
One things for sure, it won’t be an interest rate ‘hawk’. So whatever noises Ben Bernanke makes about ‘tapering’ or returning interest rates to normal is just that…noise.
for Markets and Money
From the Archives…
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New Australian Home Buyers Aren’t Convinced
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What Happens When Everyone in the World has Zero Interest Rates?
13-05-13 – Dan Denning