After this week’s about face from the Federal Reserve, market participants couldn’t be blamed for not wanting to rely too heavily on smoke signals from the Fed. After signaling that the central bank would taper its purchases of bonds for months, Ben Bernanke and friends have come out saying they’ll hold off. Caroline Baum at Bloomberg quotes UBS economists calling Bernanke & Co., “The Fed Who Cried Wolf.”
“The Fed Who Cried Wolf” was the title of a commentary by UBS economists (in a research paper to clients, so no link). “The Federal Reserve passed on an unusual opportunity: to begin the exit from quantitative easing without a potentially destabilizing market response,” they write. “A consequence of this inaction may be that the market will view future Fed communications with some scepticism.”
Credit Suisse economists Neal Soss and Dana Saporta expressed a similar view, one echoed throughout Wall Street after the meeting. (No link here either.)
“The straightforward implication of today’s surprise FOMC ‘no action’ announcement is that the Bernanke Fed wants to stay easy,” Soss and Saporta write. “It has a not-so-straightforward implication which is that it’s not clear how much we should pay attention to Fed pronouncements.”
