The start of the year has not been an easy one for financial markets. The Federal Reserve is continuing its policy of trimming its bond purchases by $10 billion a month, and the immediate result has been a sharp pullback of the currencies, and to some degree equities, of countries such as Indonesia, Turkey, India, South Africa and Argentina. The reason? According to traders, commentators, and even the head of Brazil’s central bank, Fed policy will trigger interest rate rises around the world, staunching the flow of easy money that has purportedly fueled global growth — and leading to struggles everywhere.
The Edgy Optimist
So the Federal Reserve did not taper after all, as we know from its mini-bombshell of an announcement on September 18th. Having signaled in May and June that the central bank was likely to pare back its monthly purchases of $85 billion in mortgage and treasury bonds, the bank and its chairman Ben Bernanke essentially said “Never mind,” and decided that now was not the time after all.
As this week’s release of government numbers on unemployment and jobs highlight, the American economy is puttering along in the slow lane. And while few things in life are more frustrating than being stuck in the passenger seat of that car, it certainly beats crashing.