ECONOMY - Easing Concerns Caused by FED Chairman's Statement

Typical knee-jerk reaction by the worshipers-of-greed on Wall Street.

"Fed Officials Try to Ease Concern of Stimulus End" by BINYAMIN APPELBAUM, New York Times 6/27/2013

Excerpt

The economy is the victim of a little misunderstanding, Federal Reserve officials said on Thursday, telling investors who have sent borrowing costs soaring that they are misguided in believing the Fed’s stimulus campaign is about to wane.

The message, delivered in three separate but similar speeches, reflects the Fed’s frustration with a broad rise in interest rates that began in May and accelerated after remarks last week by the Fed’s chairman, Ben S. Bernanke.

“I don’t want to be too cute about a serious matter,” Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, said in Marietta, Ga., “but to make an analogy, it seems to me the chairman said we’ll use the patch — and use it flexibly — and some in the markets reacted as if he said ‘cold turkey.’ ”

The speeches, including one by William C. Dudley, president of the Federal Reserve Bank of New York and one of Mr. Bernanke’s closest allies, appeared to make an impression, helped along by upbeat domestic economic data and an easing of concerns about Chinese financial conditions.  Stocks rose modestly, ending up for the third day in a row, while interest rates ticked downward, inverting the recent pattern.

On Wall Street, the broad Standard & Poor’s 500-stock index had risen for most of the first five months of the year, bringing it to a high of 1,669.16 on May 21.  But the next day, after Mr. Bernanke first hinted at an impending change in Fed policy, stock prices began falling, and the S.& P. 500 eventually dropped 5.7 percent to a low on June 24, a few days after the most recent Fed policy statement.  Since then, as Fed officials have sought to clarify their goals, the index has risen 2.5 percent, including Thursday’s 0.6 percent increase.

On Thursday, the three officials emphasized that the Fed was increasingly optimistic about the durability of economic growth.  And they reiterated that they expected to reduce the volume of the Fed’s monthly bond purchases later this year.  But the Fed’s overall effort to reduce borrowing costs will continue as long as necessary, most likely for years to come.

Investors, they said, need to gently place interest rates back down on the floor.

“Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy,” said the Fed governor Jerome H. Powell.

Mr. Dudley, who is also the vice chairman of the Fed’s policy-making committee, was even more emphatic.  Investors expecting an early exit are “quite out of sync” with the Fed, he said.  “A rise in short-term rates is very likely to be a long way off.”