Everyone expects Janet Yellen to be a rolling over, inflationist stooge just like they did Ben Bernanke. Bernanke came on board after Alan Greenspan had taken the Fed Funds rate up to around 5% if I remember correctly. Inflationists and gold bugs thought they had it in the bag when ‘Helicopter Ben’ assumed control.
Indeed, Bernanke did what he was supposed to do (per the ‘Helicopter ‘Ben’ script) as systemic stresses began to gather in 2007, addressing that pesky Funds rate, culminating in December, 2008′s official ZIRP (zero interest rate policy). Here again is the chart showing the S&P 500′s ‘Hump #3′ attended by this most beneficial monetary policy.
As noted again and again, the much trumpeted ‘taper’ of QE is not only not a negative for the economy, we have made a strong case that its mechanics are actually a positive, in the near term at least. But putting ZIRP on the table would be a whole different ball of wax.
We need to ask ourselves what kind of distortions the above chart represents, and what would be the implication of these distortions? The S&P 500 has, at the instigation of ZIRP formed a grand Hump #3 and yet this was done without the usual attendant rise in T Bill yields. In other words, the Fed has held ZIRP and continues to hold ZIRP, despite what Janet Yellen ruminated during her post-FOMC press conference:
How long after QE tapering ends will the Fed wait to raise the Funds Rate?
“So the language that we used in the statement is ‘considerable period.’ So I, you know, this is the kind of term it’s hard to define. But, you know, probably means something on the order of around six months, that type of thing.â€Â –Janet Yellen
Nothing has changed, other than a new Fed Chief was asked a provocative question and she bumbled along with an answer. Sort of.
The key questions are…
