· Below is the scheduled FOMC meetings/announcement dates.
· As you can see, Bernanke will Chair two more meetings. December and January, with his Chairmanship ending January 31st, 2014.
· I’ve asked myself, “could” this have any significance?
· Well, I think it just might. Now this is strictly a “theory”, and one that is probably quite convoluted, but I think it’s an interesting contemplation.
· From Bernanke’s last speech November 19th (which I’m going to report on in details later) it was made VERY clear that he/they? desperately want to pull back on LSAPs (Large Scale Asset Purchases, i.e. “QE”) to “some” degree in the near future. I’ll explain this in more detail later, but it’s an obvious Fed desire. Yet he was admittedly dismayed at the market’s reaction and subsequent climbing interest rates on the long end of the curve (and probably the selloff in the stock market as well). And he talked at length in this speech how the market was simply wrong to react this way.
· The end result of course was they did not taper. Yet, we know they want to.
· With all that said, here is my theory. I believe Bernanke would like to taper on his watch. And I think most of the FOMC members would like to see this get started as well. However, it’s obvious they were surprised by how the markets reacted, and they would rather not cause any damage, if possible. But they and we all know it may very well do that. But we will not know for sure until they do. Thus I think they want and “need” to start a taper for real this time, and see what the actual results turn out to be. And I’m sure they will hope that any short term reaction will dissipate with time and all will be well. (again, more on this when I report on Bernanke’s latest speech). However, and this is the key to my theory, if there is a sustained negative reaction to the taper, of which they lose control, what better time to have the Fed change its mind and undo the taper, if not increase LSAPs, than under a NEW CHAIRMAN! There is no way a Fed Chairman would want to start a taper, and then have to change his mind months later. He would look ridiculous and make it obvious they have no control. But if a new chairman was to do it, I believe it would look less ridiculous or less “out of control”. Yellen could come in and simply say that she has a different opinion, refer to a bunch of “metrics” she feels are going the wrong direction, and reverse the taper.
· I know this probably fantastical, but so is a Fed balance sheet at $4 Trillion dollars and growing $1 trillion a year at the current pace.
· Now, I don’t see this happening at the next December meeting in the heart of Christmas shopping season. But I can see it happening at the last meeting late January. And he would have all of January to “suggest” again that he wants to taper, “talk” a negative reaction down all January, and then actually do it at his last meeting.
· What I do know for certain, is these LSAPs cannot continue forever. It simply has to go away sooner or later.
Randy Woodward
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