Maybe Bernanke is happy with the confusion over Fed policy

One analyst believes Ben Bernanke wanted to cause confusion after his statements about Fed policy from last week's Fed meeting. According to the minutes from the April 30-May 1st Fed meeting, some officials expressed concern that investor expectations about the size of QE has increased since it was launched.

Greg Robb
May 28, 2013, 1:53 PM
Market Watch

In the wake of Fed Chairman Ben Bernanke’s comments that the central bank could take the first step towards slowing down its asset purchase programs in one of its “next few meetings,” Fed watchers are second-guessing their own projections. One top economist thinks that might have been Bernanke’s intention all along.

For instance, over the weekend, HSBC and J.P. Morgan repeated their calls that they expect the first Fed move to slow down asset purchases in December, but both added significant caveats.

Bruce Kasman, chief economist and managing director of Global Research at JP Morgan Chase & Co. said:

“The window of considering action will open in September…if employment gains are averaging close to 200,000 at this juncture, the Fed will probably act.”

In similar vein, Ryan Wang, an economist at HSBC Securities USA Inc. in New York, said:

“We continue to believe that the December meeting remains the most likely date for an adjustment; however, it is possible that that the economy might improve enough to reduce the pace of QE by the September meeting.”

Joachim Fels, chief economist at Morgan Stanley, suggested this is no accident.

“Perhaps all Ben Bernanke is trying to do is to insert some two-way risk into frothy financial markets in order to discourage the excessive risk-taking that constitutes an undesirable side-effect of the current monetary policy stance. If such verbal intervention is successful, this may actually allow the Fed to sustain the current pace of easing for longer.”

Adding to the sense of intention, some Fed watchers note that, according to the minutes of the April 30- May 1 Fed meeting, some officials did express concern that investor expectations about the size of QE had increased since it was launched last September, even though there has been improvement in the labor market since then.

Not all economists are buying this theory.

Michael Gavin, head of global emerging-market strategy at Barclays Capital, thinks financial markets have “overreacted” to Bernanke’s comments. Barclays thinks that tapering will not start until early 2014.

“First, the hypothesized exit is highly conditional and depends, in particular, on an acceleration of economic growth and employment generation in the second half of 2013 that we do not consider likely. Inflationary data have recently surprised to the downside and seem highly unlikely to trigger a “bad” tightening of policy (ie, one driven by inflation concerns rather that stronger growth and improving labor markets) in the remainder of 2013, at least. In short, our base case is that anxiety about a 2013 shift in monetary policy will fade in the weeks to come.”

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