Ben Exits, and the Money Still Flows

Today is the last day that
Ben Bernanke will spend as Chair of the central bank.  He has led the US
through some of the most challenging economic times that this generation has
faced.  With Mr. Bernanke at the helm the Fed implemented Quantitate
Easing, a program designed to keep longer-term interest rates low to
encourage everyone to spend money that they didn’t have in an attempt to
stimulate economic growth.  They did that at first by selling shorter-term
debt instruments and eventually by just printing money.  Did it work?
I think so.  Would it have been better to just let things ride?  I
dunno.  I thought so back in 2008, but there’s no way to really tell
now.  I think that our economy could have gotten much worse (just look at
the world around us and pick a country for comparison) than it did.  And
it didn’t, so kudos to you Mr. Ben.

As of this week’s FOMC meeting, the Fed has reduced it’s Bond buying spree from
$85B to $65B.  Since the announcement at the end December that they were
going to taper the purchases, Stock values have declined around 4% as a
whole, and with a decrease of over 200 points this morning (DOW),  Stocks
look to finish their worst January performance in years.  Conversely, Bond
prices have increased commensurately and with that brings a reduction in interest
rates.

Economic data has had little impact on Bonds this morning.   Personal
Incomes have not come risen (v. the 0.2% rise expected).
But we won’t let a lack of income ruin our fun though (I mean after all,
borrowed money is cheap right now); Personal Spending rose 0.4%,
above the 0.2% anticipated.  The Core Personal Consumption Expenditures
reading (a different way to show how much we spend and a way the Fed likes
to track inflation at the consumer level) actually rose
year-over-year by1.2%.  Policy makers like to see these numbers
between 2-2.5% to show an expanding economy.  So while the Fed further cut
it’s participation in Quantitate Easing this week by another $10B per
month, if Inflation continues to “underperform”, the egress QE may
not be as swift going forward.