Parsing FedSpeak as Though it’s Holy Scripture
It is a sad occurrence that we Americans have allowed the Federal Reserve to become so powerful that we analyze statements from the members of the FOMC as if we were parsing the words of scripture. These individuals are light years away from divinity and, therefore, have no more prognosticative powers than any of us. In fact, investors would have done quite well taking the opposite side of the trade from that of the Fed.
It bothers me greatly that Mr. Bernanke has predicted an economic recovery every year since the Great Recession began in 2007 and yet GDP growth has consistently underperformed. For example, in April of 2011 the Fed predicted GDP growth would post a reading of 3.1% for that same year. However, GDP growth came in at just 1.8% during 2011. Then, in September of 2012 the Fed raised its growth forecast for 2013 to a range of 2.5%-3.0%. To illustrate its lack of omniscience, growth in Q1 was just 1.8%.
My point here isn’t to prove that the FOMC doesn’t have a crystal ball. That isn’t news to anyone. But I want to know why we, as a free nation, continue to allow any small group of individuals to dictate what borrowing costs will be for the entire economy. And, why most on Wall St. and in Washington give this institution so much credibility.
I understand why we as investors are forced to pay very close attention to what the Fed says and does; but respect is something it will never get from me. Nevertheless, the stock market is getting battered around like a piñata between the Fed’s ambivalent feelings towards wanting to taper QE and the reality that the reduction of asset purchases will crush markets. The market plummeted 5% just a few days after Mr. Bernanke laid out his timeline for ending QE on June 19th. So, it isn’t so much of a mystery why numerous Fed officials immediately tried to walk away from the Chairman’s statements.
We believe problems in China and Europe, along with a slowing U.S. economy have put downward pressure on Q2 earnings and revenue. And, with the Fed unlikely to increase the level of QE until the data turns sharply negative, it seems the major averages will struggle over the next few months.
Trending on Affluent Investor
Sorry. No data so far.