Follow Yahoo!'s The Daily Ticker on Facebook here!
The day after the Fed's surprise promise to keep rates low until the end of 2014 "at least," a lot of market watcher as still scratching their heads.
As is so often the case, most of the reaction is tilted toward the negatives, and can be grouped into three main categories:
- - The Fed is debasing the dollar.
- - The Fed is going to trigger inflation and has now tied its hands.
- - The Fed knows "something" and is very worried about the economy. (See: Bernanke Pledges to Keep Rates Low Thru 2014: A "Very Pessimistic" Outlook, Former Fed VP Says )
As is so often the case, Byron Wien takes a contrary opinion to the consensus and is more optimistic than most.
"What they're trying to do is say 'the Fed is on your side Mr. Businessman; you can borrow at low rates,'" says Wien, vice chairman of Blackstone Advisory Partners. "By stretching it out to 2014, they're adding their support to whatever incipient optimism is developing in the business community."
Speaking of which, a new WSJ/NBC poll shows Americans are feeling more positive about the economy and President Obama's handling of it: 37% say they expect the economy to get better up while 17% see it getting worse vs. 30% and 22%, respectively.
Instead of assuming the Fed sees some kind of bogeyman about to come out of the closest (most likely in Europe) and destroy the economy, Wien's take is the Fed is "hedging their bets" and doing "whatever they can to give business confidence."
As for the other big concerns, Wien notes the dollar has been in a "slow downward glide path" for many years, but that central bankers in Europe and Japan are also undermining local currencies. Yes, he is bullish on gold -- and commodity currencies such as the Aussie and Canadian dollars -- for these reasons. But the Fed's action this week merely reinforced his views, rather than fundamentally altering them.
The fact the Fed has a very accommodating policy is not surprising, he quips.
As for inflation, Wien notes rates have been low for a decade but inflation remains subdued. "Ultimately the expansion of monetary policy can be inflationary, but unless home prices are going up and wages are going up, I don't think inflation is a near-term danger."
In a bit of econo-humor, Wien quips that it's probably better Milton Friedman -- who argued inflation is a monetary phenomenon -- "is dead so he doesn't have to see this."
For the record, I should note Wien is more bullish on the outlook for the U.S. economy than the Fed -- he sees 3% real GDP growth in 2012 vs. 2.2% to 2.7% at the FOMC -- so perhaps that explains his optimistic spin on the FOMC's actions.
Wien is also fairly upbeat about stocks, predicting the S&P will hit 1400 this year "and we're well on the way." While the Fed's pledge to keep rates at zero is a positive for stocks, investors may be getting too comfortable, he warns: "We're not going up in a straight line."
He's optimistic but not unrealistic.
Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.
40 comments