World Investor Confidence Shaky
Commentary ~June 26, 2013
Richard Fisher, the President of the Federal Reserve Bank of Dallas [and one of 12 Federal Reserve Bank Presidents], offered these rather bristly comments after the markets reacted so negatively to Fed Chairman Bernanke’s assertion last week that the Fed would “soon” begin to taper off its Quantitative Easing Program, “probably” eliminating it entirely by the middle of 2014 if our economy meets the goals and forecasts recently determined by the Fed.
“I agree fully with the chairman that we should dial back on the stimulus” if “we achieve what the 19 of us forecast,” Fisher said. [12 Federal Bank Presidents plus 7 “Fed” members]
Since we have learned to read between the lines of what Fed officials say, we may be able to infer that there is a concerted effort underway—and certainly not only by Dallas Fed President Fisher—to get us all thinking and talking about the end of the Quantitative Easing program…and, hopefully, moving toward acceptance of its demise, not sweeping it under the carpet.
Such acceptance is not in evidence among world investors, however. Granted, the market reaction to the announcements has eased a bit—but the fear that our government will stop keeping interest rates lower by investing roughly $85 billion a month in purchases of mortgage-backed bonds remains strong. Investors all over the world are fearful that the Fed will send credit markets into a tailspin if it ceases its QE3 program. In other words, a great number of investors around the world believe that the American economy cannot stand on its own feet without being propped up by the government.
This overriding sense of concern—reflected in investor jitters over China’s announcement that it will avoid government stimulus in its current crisis—suggests that all is not well in the world economy…that if we remove the string and Scotch tape now holding things together, we’re in for big trouble.
If this is so, we can understand the Fed’s wish to float the idea that it is pulling out of the business of supporting the economy with massive infusions of just-printed money, and that it expects the world’s markets to help make this next phase work by stepping up to the plate.
We also need American home builders and buyers to score some runs of their own, for it is the real estate sector that appears uniquely ready to support a recovery without the Fed’s constant assistance. By and large the real estate market has come up with the needed energy and strength so far, but it’s clearly time to watch closely. The world’s investors certainly are!