Marc Chandler, head of global currency strategy at Brown Brothers Harriman, has both good news and bad news for the legions of Ben Bernanke haters. The good news is that Chandler expects Bernanke to obey the "informal rule" of two term limits for FOMC chairman. The bad news, for the haters of current policy, is that nothing is going to change if and when Bernanke leaves at the end of his term next January.
Conventional wisdom is that vice chair of the Board of Governors, Janet Yellen, will take the helm next, but that's of little consequence. What matters is policy and, more specifically, when the FOMC starts weaning the markets off years of Quantitative Easing (QE).
With economic data coming in slightly better than expected and junk debt yields dropping below a somewhat preposterous 5%, the market is starting to toy with the notion that QE may be coming to a halt sooner than expected. Chandler says the Fed is going to see more than just another "phase" of stronger data before calling a halt to the most controversial economic stimulus program since FDR was in office.
No one uses the term anymore, but Chandler describes the Fed as being in a box. They want to stimulate to assist job creation but can't do so at the expense of savers or those currently being baited into high-risk investments by the Fed's perversely low interest rates. Pushing investors out on the risk curve and then burning the bridge behind them is bad form and bad policy. The Fed only has "blunt tools" with which to work, Chandler maintains. It doesn't matter whether QE ends abruptly or with tapering, it's going to hurt when it happens.
Whatever the implications of an end to stimulus, Chandler isn't looking for it to happen by the end of this year or even by early in 2014. If Bernanke plays his cards right he will have stepped down from the FOMC and up to the high-paying lecture circuit by February of next year, leaving Janet Yellen to figure out how to unwind this mess.
- Budget, Tax & Economy
- Ben Bernanke
- Janet Yellen