This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Fed Walks Backs Away From Being Calendar-Dependent

NEW YORK ( TheStreet) -- After Federal Reserve Chairman Ben Bernanke unintentionally stirred up a hornet's nest with his comments and disrupted financial markets, his lieutenants stepped in to attempt to allay worries.

Bernanke has been Fed chairman for seven years, yet he still hasn't learned how to communicate effectively with the markets.

Since Bernanke spoke, there has been a parade of Fed regional bank presidents, including James Bullard of St. Louis, Narayana Kocherlakota of Minneapolis and William Dudley of New York, attempting to publicly defuse Bernanke's trial balloon. Bernanke had said that Fed policy might become calendar-dependent and that the central bank might start slowing asset purchases later this year and end the program sometime in 2014.

If Bullard et al are giving a more accurate representation of the Reserve Board's thinking, then the asset purchase program, under which the Fed buys $85 billion of Treasuries and mortgage-backed securities each month, will go back to being data-dependent. That means policy will target a 6.5% unemployment rate and a 2% rate of inflation. For now, unemployment is more than 6.5% and inflation is less than 2%, so the asset purchases continue.

In the panic that followed Bernanke's comments, the yield on the 10-year Treasury hit a high of 2.66% after spending much of the last two years at 2% or less. The S&P 500 reacted with a 90-point, or 5.4%, decline over the course of three trading days.

On Monday, the equity market started to bounce back on the possibility it was overreacting to Bernanke's comments. The yield on the 10-year also started working its way lower on Monday and closed at less than 2.5% Thursday.

On the way down last week, the segments hardest hit were emerging markets and bond funds. Not surprisingly, these two segments did well on the way back up. Last Friday, as fear and the selloffs were accelerating, I noted the extent to which the market was moving more on emotion than anything else, but emotion doesn't just take prices down. In the last three days the S&P 500 is up 3.3%. A move of that magnitude is about the emotion of relief.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
STPZ $52.06 0.31%
TIP $114.47 0.77%
AAPL $124.25 -0.14%
FB $81.66 -0.67%
GOOG $542.56 -0.99%

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs