from Armstrong Economics:
Fed’s Schizophrenia (a mental disorder characterized by a breakdown of thought processes) seems to have the unprofessional world in a tailspin where the talking heads are talking to themselves. The Federal Reserve shocked the media and the typical market investor when it announced that it would not taper its $85 billion bond buying program. I explained that it was normal strategic behavior for the Fed to test out ideas to see how the marketplace will take such a change in policy. The last thing the Fed wants is to be blamed for creating some major financial event and as such they ALWAYS error on the side of caution. Since that statement, the Fed has allowed members to speak publicly yielding the impression that the Fed is a house deeply divided. Since Mr. Bernanke’s press conference on September 18th, four Fed governors have given their own opinion on whether the Fed should extend their bond buying program and continue to provide additional stimulus to the economy. This is part of a strategic move and a real first. They are trying to keep the market cautious for they know they are not actually in control of anything.
The market reacted positively to Bernanke’s comments, and then afterwards James Bullard unsettled the market by expressing his take on the decision. The Federal Reserve Bank of St. Louis President suggested that the decision to continue the purchasing program “was a borderline decision” after “weaker data came in,” and that some data change could make the committee be comfortable with a small taper in October.
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