inflation expectations Archives • Rutherford Investment

Market Rises Closer To All-Time High

Originally posted in the Daily Journal of Commerce, Portland OR

Published February 11, 2013
The equity market in the U.S. has continued the rally that began June 1, 2012. January’s 5.1 percent increase for the S&P was the largest since October 2011. The Dow surpassed 14,000 for the first time since 2007. What’s more, the market accomplished this in the face of a declining gross domestic product in the fourth quarter of 2012, when GDP dropped 0.1 percent instead of increasing as expected. Unemployment ratcheted up to 7.8 percent.

In response, the Federal Reserve said:

Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather related disruptions and other transitory factors. Employment has continued to expand at a moderate pace, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has shown further improvement. Inflation has been running somewhat below the committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability. The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate. Although strains in global financial markets have eased somewhat, the committee continues to see downside risks to the economic outlook. The committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery […]

Verdict On Bernanke’s First Press Conference

Published May 6, 2011
When I published “Who Shot Goldilocks?” in 2004, I recommended that the Federal Reserve announce rate decisions by communicating in plain English at a press conference where the chairman could be asked questions. This was because of Alan Greenspan’s notoriously obfuscatory pattern. Seven years later, on April 27, Chairman Ben Bernanke held such a press conference.

Bernanke first read from a prepared statement and then took questions from reporters. As befits the U.S. Federal Reserve, reporters from around the world were in attendance. Questions were asked by reporters from the U.K., France and Japan. It was an event that Americans can be proud of as our central bank chairman set new standards for openness and transparency … with the entire world watching and participating.

Among the policy matters that the chairman discussed was the end of Quantitative Easing II, which will be completed by June 30. There will be no change in the present policy of reinvesting matured debt and interest into new purchases. But the $600 billion program of bond purchases by the Fed will come to an end.

Bernanke defended QE II in a strong statement. He said that at the time the program was begun, the U.S. was looking at a double dip recession and that it was on the cusp of deflation. It was necessary, he said, and it worked. The program triggered significant changes in the financial markets, and the easing financial conditions led to a stronger economy, just as the first quantitative easing effort had done in March 2009.

The chairman said there would be no change to the target range for the federal funds rate at 0 to […]