Salient to Investors:
Jeffrey Lacker at FRB of Richmond said
- Financial markets will remain volatile as policy makers debate tapering, part of the process of incorporating new information into financial asset prices.
- Reaction to Bernanke’s comments is evidence that they had built-in expectations of more asset purchases than I think the FOMC was anticipating, so recent asset price declines were not surprising.
- When tightening nears, expect more fixed-income volatility.
- More bond purchases are unwarranted because the 4-year economic expansion is limited by structural elements beyond the Fed’s control, and continued QE increases the risks accompanying the eventual withdrawal of the stimulus. Additional monetary stimulus cannot provide much impetus to real growth.
- Over the next 12 months, the FOMC will reduce only the pace of QE, leaving the punch bowl in place.
- Low economic growth rates will persist for several years, but housing is on a solid growth path, boosting the confidence of many households.
Fed Governor Jerome Powell said market adjustments since May have been larger than justified by any reasonable reassessment of the path of policy.
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