Fed asks for a do-over
After weeks of lackluster market performance, the Fed has decided that it had better try to turn things around.
Last week, Fed reporter Steven Beckner sent a few headlines across the newswires reporting on comments made by Atlanta Federal Reserve President Dennis Lockhart. Lockhart stated that Bernanke's comments "do not constitute an enormous shift in policy," and the "policy will remain highly accommodative." Roughly interpreted to say, we didn't mean that we were going to stop.
There we have it, folks, the answer to the question I posed last week. What would the Fed do now that it sees how much impact it has on our markets with the just mere mentioning of a slowdown in spending? It will immediately try to put out the fire by saying it didn't mean it, and it, of course, plans to continue to spend as long as it continues to help.
But is it really helping?
The GDP for the first quarter of 2013 has just been downgraded from 2.4 percent growth to 1.8 percent. To me this appears to be a rather poor showing with the amount of money the Fed is pumping into the system.
A recent survey by bankrate.com reveals that 76 percent of Americans are living paycheck to paycheck. It seems that less than one in four has enough savings to cover expenses for six months. With just enough income to cover expenses, it appears these individuals won't be increasing their spending soon to help spur on the economy.
Regardless, the markets seemed to like the news. The Dow came back from a low of 14,660 on June 23rd to above 15,000 on the 27th; interestingly, on the same day, the news wires were reporting the Fed's "mea culpa."
As this spending by the Fed drags on, I wonder how long the medicine will continue to work. We can't go on spending forever; there has to come a time when it stops. I just hope the Fed has a solution up its sleeve to make the withdrawal symptoms more bearable.