That was my feeling yesterday when the Fed announced they were not prepared to begin tapering the quantitative easing, which is the purchasing of $85 billion in government and mortgage-backed bonds every month. The economy is not so weak it could not survive a $10 billion decrease. The stock market was fully prepared for it, as the 147 point relief rally in the Dow proves.
It was time for the Fed to start unwinding a successful program before it does actual damage to the American economy by igniting inflation. Unfortunately, the Fed blinked. Interest rates fell, the dollar sank, and gold soared, The likelihood of inflation just increased by some percentage. If Janet Yellen does take Bernanke’s place, as expected, the likelihood of inflation will again increase.
We also need to get the Fed out of the stock market. Their actions whipsaw the market with every comment they make. Analysts then ignore business realities, like earnings, growth rates, management changes and so forth, focusing instead on the Fed.
Some pundits think Bernanke postponed tapering because he knows the economic damage from a government shutdown next month would only be aggravated by tapering ahead of it. Maybe?
While I religiously avoid discussing anything even remotely religious, I would remind the Fed of the wisdom in Proverbs 13:24, which states “whoever spares the rod hates their children, but the one that loves their children is careful to discipline them.”