(James Saft is a Reuters columnist. The opinions expressed are his own)
By James Saft
(Reuters) – The Federal Reserve did the right thing in the wrong way and very likely for the wrong reasons.
The Fed said on Wednesday it would continue buying bonds at an $85 billion monthly pace for now, citing concerns about a sharp rise in borrowing costs in recent months and the upcoming budget battle in Washington. This came as a huge surprise to most people, well anyone who listened to and believed what Fed Chairman Ben Bernanke has been saying for the past three months or so, when he did a masterful job of setting the market up for a tapering of bond purchases.
“The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market,” the U.S. central bank said in a statement explaining its decision.
Seriously, the Fed, having led us to believe it would taper, just told us it wasn’t tapering because we believed them. What, exactly, are we now to think?
I’ve been among those who criticized the Fed for artificially suppressing volatility in financial markets, but I didn’t intend for them to increase it by acting unpredictably; I was hoping more that they’d let assets find their own values.