The Wall Street Journal is on the hard-money side of the debate over recent monetary policy. But its editorial on the departure of Ben S. Bernanke as chairman of the Federal Reserve articulated a conventional wisdom that transcends that debate.
The market has continued to consolidate higher this morning as it searches to test resistance at 1780-82.25. Yesterday's close was 1771.25, the market must hold this level and truly close above the pivot at 1775.75-1776.25 to keep sentiment positive.
U.S. stocks fell, with the Standard & Poor’s 500 Index headed for a one-month low, while Treasuries and the yen gained as the Federal Reserve said it would make further reductions in economic stimulus and as emerging-market currencies weakened. Gold and natural gas climbed.
The January statement released minutes ago is practically identical to the prior month and contains the highly anticipated continuation of measured reduction in the monthly pace of bond purchases. The FOMC voted unanimously, and we don’t recall off hand the last time that happened.
Most of us in the West know, or should know, that all things being equal it is best for the Federal Reserve not to intervene in the economy. We prefer market forces to work. But of course all things are not equal.
By December, the most recent month for which statistics are available, the U.S. dollar Fiat Money Quantity (FMQ) had grown to $12.48 trillion. This is $5.05 trillion more than if it had grown in line with the established average monthly growth rate from 1960 to the month before the Lehman Crisis.
Ben Bernanke recently said the Fed is not overly concerned at the moment that there are bubbles forming in the financial system, although he stressed the Fed is “watching vigilantly” for such risks. Based on the Fed’s track record, there would be no bubbles if they had that foresight.