Courtesy of Pam Martens.
Janet Yellen Taking the Oath at Her Senate Confirmation Hearing for Federal Reserve Chair
The head of the Bank of England (BOE), Mark Carney, who also chairs the G20’s Financial Stability Board, has a very different view from the U.S. Fed on how to exit stimulus programs. Carney is credited with successfully guiding Canada, where he previously served as head of the central bank, through the worst of the global financial crisis from 2008 to 2010. Does Carney know something that monetary policy wonks in the U.S. don’t or does the Fed know something the rest of us don’t?
In her debut press conference yesterday after taking the reins at the Federal Reserve Board of Governors on February 3 of this year, Janet Yellen jolted markets with the assessment that the Fed’s mammoth, monthly bond buying program, known as quantitative easing (QE), might end as early as this fall. Then, when asked how long after that the Fed might wait before it raised interest rates, Yellen said “it probably means something on the order of six months or that type of thing.”
Markets trade not on what is occurring today, but on the composite perception of what will be happening six months out. Thus, there was an immediate repricing of expectations, pushing stock prices down as their dividend yield looked less attractive to bond yields, which immediately moved upward on anticipation of higher rates sooner than expected.
The Fed’s Federal Open Market Committee also announced another tapering of $10 billion per month in the bond buying program (QE), making that the third taper in as many months and reducing the stimulus from $85 billion a month at the end of last year to $55 billion beginning in April. The Fed has yet to make a move on raising interest rates, however.
Mark Carney, Head of the Bank of England, Testifying Before Parliament on March 11, 2014
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