If ever one doubted that Ben Bernanke needs to step down from heading the Federal Reserve when his term expires in January 2014, all one needed to do was to watch his press conference following yesterday’s FOMC meeting. For far from allaying the market’s concerns about the way that the Fed would eventually exit its third round of quantitative easing (QE3), he gave the market every reason to be more concerned about an abrupt end to that quantitative easing program.
Had Mr. Bernanke been in tune with the market’s concerns about an early start to the tapering off of the Fed’s massive bond buying program, he would have stuck strictly to the script that any tapering off of that program would be data dependent. In that context, he might have limited himself to reiterating that the Federal Reserve did not see that the US economy was presently strong enough to start tapering now and that the Fed would calibrate any eventual tapering strictly to the way that the economy was performing and to the way that the labor market was healing.
Instead, Mr. Bernanke took it upon himself to venture that according to the Fed’s own economic forecasts not only could he envisage a start to the tapering off beginning by the end of 2013 but he could envisage an end to the whole program of Federal Reserve bond buying by the middle of 2014. It is little wonder then that a market that until yesterday was concerned about an early start to the tapering process is now roiled by the prospect of the end to QE3 by as early as the middle of next year.
The irony of Mr. Bernanke’s poor communication with the market is that he might have created market conditions that will ensure that the economy is not strong enough for him to either start tapering by the end of 2013 or to end the program by mid-2014 as he suggested he might do at yesterday’s press conference.