Let me see if I understand this correctly.
QE4 is announced and it was declared that bonds will be purchased for as long as the eye can see or until we achieve an unemployment rate of 6.5%.
Several weeks later, the majority of Federal Reserve officials announced that it would be “appropriate” to end QE4 prior to the end of 2013 or by the end of 2013.
So, what the heck happened to 6.5% unemployment?
The Fed, for almost 100-years, has operated with two mandated objectives, namely stable prices and full employment.
In order to achieve those goals, they can control short-term interest rates through the purchase or sale of treasuries.
There has also been another weapon at the Fed’s disposal which is not usually discussed, and that is the spoken word.
Alan Greenspan took Congressional appearances to a whole new art form that some dubbed “Greenspeak.”
Given the economic intelligence level of most legislators; it wasn’t difficult for “the maestro” to give a litany of double-talk and have the “folks” (an Obama term) from Congress say things such as, Mr. Chairman, thank you for coming, thanks for clarifying, and have a real nice day. Unfortunately, or fortunately for that matter, absolutely no one had a clue as to what Greenspan had just said.
And now that Bernanke and gang have pretty much exhausted all their tools, they have reverted back to “Greenspeak” in the hopes that no one will really notice.
The question arises, however, regarding the model the Federal Reserve utilized in order to determine that 6.5% was the ideal level to start reducing the balance sheet.
Could it be that the Fed heads discovered that their model was flawed? Were they told that the Bureau of Labor Statistics (BLS) would no longer manipulate the numbers, thereby confusing the model? Or, did they just conclude that a change in strategy after 100-years was just a really bad idea?
Someone should inform Helicopter Ben that the beauty of Alan Greenspan was due to Alan’s propensity to never be put in a corner, since you never really knew what he said.
Bernanke, on the other hand, has delivered some very memorable zingers over the years: “no recession,” “national housing prices never go down,” and now, “a target of 6.5% unemployment.”
It seems whether the Fed stops buying bonds or continues purchasing treasuries; the 6.5% unemployment comment will be relegated to one of Bernanke’s historical dust bins, very much like “subprime is contained.”
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