Ben Bernanke didn’t say “taper.” That’s the buzzword that’s taken investors and the media by storm since the Fed chief’s May 22 appearance before Congress, and he didn’t even utter it. Sure, he said, “step down” and “wind down” in reference to the Fed’s bond-buying program, but the word that has been associated more than any other with the last month of Fed watching wasn’t even spoken.
You could argue that it all amounts to the same thing, whatever you call it, but it speaks to a bigger problem: investors are trying too hard to find the right word to describe a plan that the chairman hasn’t yet settled on. Bernanke & Co. wrap up a two-day meeting today, followed by a press conference. But those waiting for a taper blueprint may be disappointed.
A recent Bloomberg news story ventured that Bernanke, as well as his counterparts in Europe and Japan, are suffering from “failure to communicate,” cribbing a line from “Cool Hand Luke.”
In fact, Bernanke’s been communicating fine. Investors just don’t like what he has to say. Most of his comments have been of the “on the one hand…but on the other hand” ilk. The Fed chair’s message has been clear: he doesn’t know when he’ll pull back on quantitative easing.
A sampling from May 22:
“In considering whether a recalibration of the pace of its purchases is warranted, the [Federal Open Market] committee will continue to assess the degree of progress made toward its objectives in light of incoming information.”
“A premature tightening of monetary policy could lead interest rates to rise temporarily but [italics mine] would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.”
A reduction in stimulus would not happen in an “automatic, mechanistic program. Any change would depend on the incoming data.”
Meanwhile, the minutes of the April 30-May 1 FOMC meeting were released the same day, and reflected a split among the members: some wanted to slow the pace of asset purchases as early as the June meeting. Again, there were no firm conclusions, just collective indecision.
Since May 22, the S&P 500 has dropped more than one and a half percent after a four-year, 147 percent run. The ten-year Treasury yield bottomed at 1.63 percent before climbing as high as 2.23 percent (still not much of a “high,” historically speaking). Although the moves have been relatively small, it’s clear that uncertainty about the Fed has stalled the stock market’s advance.
Today’s rate decision is not likely to give investors any more certainty. Given Bernanke’s predilection for equivocation, and the markets distaste for it, it’s possible the decline has further to go.
One bit of upside to look forward to in this process: What Bernanke is looking for before putting an end to asset purchases is improvement in the economy. As I discussed yesterday, in the past when interest rates rose because the economy was recovering, stocks went up, too.
Julie Hyman is a senior markets desk correspondent for Bloomberg Television, based in New York City. You can follow her on Twitter here.