Judging from the market’s reaction to Tuesday’s minutes of the last Fed meeting, the answer appears to be the latter. But I find it hard to agree with this logic.
I don’t see any reason why the Fed should be providing more support through additional bond purchases if the economy can hold ground all by itself. If anything, this is a very bullish sign for the market. This confirms that the market wasn’t running on fumes over the last few months, as some had been claiming, but was reflecting solid improvement in the economy’s underlying fundamentals.
I concede that no more Fed QEs mean that the Bernanke will likely have to take back the late-2014 commitment about interest rates. We will likely start hearing discussions about exit plans for the Fed. At some stage, the Fed will have to start thinking in terms of shrinking its balance sheet. And all of this will start showing up in higher interest rates.
But why is this adjustment in Fed policy such a terrible thing if the change reflects economic strength? The Fed’s easy-money policy was all along supposed to be a relatively temporary response to an otherwise extraordinary situation. Why all the hand wringing on the part of investors? What am I missing here?
To read this article on Zacks.com click here.
Zacks Investment Research
