Bernanke speaks, the markets respond

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Last week, Fed Chairman Ben Bernanke made allusions in his speech that he was ready to begin to slow down the Fed’s $85 billion-a-month bond-buying program later this year. He also stated they may completely do away with it in early 2014 as long as economic conditions continue to improve.

This is a much different attitude than the Fed has shown in the past. The program was open-ended when it began, with the intent to suspend it only once unemployment dropped to 6.5 percent. But now Mr. Bernanke may stop the program prematurely.

Stock markets did not appear to like this new idea and immediately began a pullback, with the Dow losing more than 5 percent in two days of trading after the news was released. The losses continued to pile up into this week, with losses in the S&P 500 exceeding 7 percent.

What is this telling us about the health of our markets? If the mere mention of a slowdown in bond buying sends our markets screaming south, what will happen when the Fed actually ceases the program?

What’s more, if the original economic problems return after the “medicine” has been stopped, was the program ever truly effective?

There is no question that the stock market has improved dramatically since its lowest point in 2009. However, are these improvements only the result of the trillions of dollars our government has been spending? If it is, how can the Fed ever cease its measures when the mere mention of a possible slow down or suspension has such dramatic effects on the market?

While I have not personally been in favor of the continued spending by the Fed, I have enjoyed the benefits of their generosity. I like watching the stock markets grow and seeing my clients’ accounts increase in value just as much as they do.

I am just concerned that what we have been experiencing is not true economic growth. I am fearful of the implications of last week’s market drop and am keeping a close eye on how Mr. Bernanke will respond to this recent development.

Will he retract his statements in hopes of erasing some of the losses or will he continue with his plan of slowing down the program?

Everyone who has money in the stock market should keep an eye on Mr. Bernanke’s remarks. They may have a serious impact on your financial well-being.

 

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