By Paul Lombino
Sometimes you can’t win for succeeding.
When Federal Reserve chairman Ben Bernanke announced June 19 that the U.S. economy may be performing well enough to eventually stand on its own two feet, the collective market super freaked. On that Wednesday, the central bank chief gave investors an early heads-up that the Fed was considering may-beeeee later this year that it would begin to slow its quantitative easing policy. You know, QE, where the government buys bonds to keep interest rates low to help goose economic activity.
As if Bernanke’s statement were some bolt from the blue, the Dow Jones Industrial Average reacted by shedding some 200 points that day and 353 points the next day, the index’s worst one-day downturn since November 2011. I realize investors sold off for a variety of reasons, including profit taking and fears that China’s economy may be on shaky ground. But it didn’t help that a number of business pundits rushed to declare that Bernanke was “taking his foot off the accelerator.” Horrors. And wrong.
Choosing Words Carefully
When it comes to interpreting the intentions of influential people like the Fed chairman whose remarks can generate ripples beyond the U.S. market, it’s important to understand first and then choose words carefully. Saying that Bernanke was “weighing conditions to gradually ease off the stimulus pedal at some point in the future” would have been more accurate and, perhaps, may have tempered the knee-jerk reaction by jittery investors.
Removing the euphemistic punch bowl has been part of the Fed’s policy objective since the dark financial days of 2009. So keep in mind that when ─ not if ─ America’s central bank decides to bump up rates ─ possibly this fall, maybe 2014 ─ to help balance economic growth and inflation, take a deep breath. The U.S. economic system is just that, a system. One that needs to be tweaked here and there to keep it running at a reasonable pace ─ ideally not too fast, not too slow.
Getting it just right will be no simple task. But higher interest rates down the road will be a signal that our economy is healing. And that’s a good thing. Isn’t it?