Many moons ago, when my two young children were confused by what their mother or I had to say, we would all adjourn to the library room for a good old fashioned family meeting in order to establish some much needed clarification.Likewise, so it is nowadays with the Federal Reserve.Indeed, the Fed has decided that the announcements that were given following the most recent FOMC meeting, as compared to prior signals conveyed by Ben Bernanke and others, were definitely at odds.In fact, confusion and uncertainty seem to reign supreme these days.Thus, it was necessary for the Fed to recently stage an old fashioned “family meeting,” or in this case, it was the process of instructing Fed officials — both voting and non-voting — to speak publicly in an attempt to clarify the situation.Usually, it’s one or two individuals that assume the task, but in this instance, Bernanke decided that twelve lucky Fed heads would be needed.
Initially, it was decided that the current QE program would be discontinued when the unemployment rate declined to 6.5%. This was easily understood by everyone since it was a fixed number, thought to be attainable at some point in 2014 or perhaps 2015.Reality quickly set in, however, that despite the removal of millions of people from the labor participation pool by the BLS, the targeted unemployment rate could take much longer to achieve than the Fed first realized.Therefore, a new strategy was needed and the word “taper” (a slight paring back of the Fed’s bond purchasing program) was introduced.Sometime within the next twelve months the tapering would commence, it was hinted at the time.After all, the overall economy, not just a quirky unemployment rate, was allegedly doing so well.Then, somewhere along the line, whether it was leaked by the Wall Street Journal’s Jon Hilsenrath (the Fed’s mouthpiece), or someone at Goldman Sachs or Pimco (the real mouthpieces), the current month of September became THE MONTH FOR THE TAPER.
Therefore, it wasn’t a question of when, since we had the date, it was simply a question of how much.Yet, the guidance announced by the Fed seemed to go awry last week, as tapering was pushed back to another time, even though the economy was supposedly doing so well.Needless to say, this resulted in total “family” confusion.
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