Let’s get the obvious out of the way, shall we: Ben Bernanke and his fellow FOMC board members did the right thing yesterday. Sure, it was the unpopular thing to do, but Ben put his foot on the gas and basically said this bus isn’t stopping until he’s comfortable the economy can prosper on its own.
You may ask what his definition of ‘comfortable’ may be. Well, during yesterday’s press conference, Bernanke offered a number: 7. He wants to see 7 percent unemployment, not the current 8.1 percent. Keep in mind, the unemployment rate has been stuck above 8 percent since February 2009 when the country was planted in the middle of Recession Island.
The details of this recent monetary policy move, otherwise known as QE3, are quite simple. The Fed, beginning January 2013, will purchase $40 billion of mortgage debt per month and maintain a ‘zero-interest rate’ environment well into 2015. You’d be naïve to think rates will be shifting higher, including mortgage rates, any time soon. So, if you’re waiting to obtain a mortgage to purchase a home, well, feel free to keep waiting.
Several pundits were calling for the Fed to pull the trigger at this month’s meeting. Personally, I figured why rush the deal. Bernanke has authored many papers describing the diminishing returns of overlapping monetary policy moves. And, considering ‘Operation Twist’ is humming along until December 31st, why announce something now when they won’t implement until the new year.
But Bernanke didn’t have a choice. The catalyst that brought this on was Friday’s abysmal jobs report. The economy is slowly dying, not like 2008 when Lehman’s collapse set off a chain of broken fiscal events that seemed to take only days to solidify. The economy isn’t just stuck in quicksand, it’s literally drowning.
So, who better to throw a lifeline than the one fella who’s been playing superhero all along: Ben S. Bernanke. The risk for the Fed is the ‘unlimited’ language. Bernanke’s term is up in January 2014, and Mitt Romney has made public statements about the Fed Chairman’s future if he is elected President. To be blunt, Bernanke will not be asked to return.
If Obama is re-elected, it’s safe to assume that yesterday’s action will continue well through his entire second term. Therefore, Obama will be the only President in history to have monetary policy easing take place for his complete duration in the White House. This is a topic for another time, though.
For now, it’s about manufacturing growth and wealth in America. There’s nothing organic about the economy; it needs stimulus and doesn’t appear to be showing signs of breathing on its own for years, if not a full decade, from now.
I’ll leave you with one final thought: Yesterday’s move did prove that Bernanke is the only man working these days in DC. The President and Congress continue to show incompetence and had it not been for Bernanke, this economy would be toast. At least someone is being proactive in that town. So, keep it in mind, because the Chairman is about to get slammed by the GOP and the media in the days to come.
All nonsense.
This will net = Zero jobs, zero increase in industrial output & zero effect on housing.
The rates have all been very very low for a long time.
What this WILL do is cause an immediate uptick in commodity prices such as oil - look for future to reach new highs.
And in all of those things that little bennie doesn’t call inflation like gas and food.