Published On: Mon, Oct 27th, 2014

Will Fed Chief Janet Yellen Take Away The Punch Bowl?


Janet Yellen

The same question arises ahead of every Fed Meeting, “Will Fed chief Janet Yellen take away the punch bowl?” Quantitative Easing, or buying bonds to keep interest rates low and to stimulate the economy, has become the new normal. However, it has to cease or at least be tapered off at some point, but every hint that QE may be eased tends to upset the stock market. Wall Street has been in a good news is bad news mode: strong economic data means that QE will be relaxed, interest rates may rise, and stocks tend to fall.

There was a lot to be excited about in the last unemployment number, but …not so fast. As Jens Erik Gould of Marketwatch points out, the jobless rate fell to 5.9% last month after reaching above 10% at the height of the recession. While the Federal Reserve has indicated that it won’t take a radical approach to ceasing bond buying, it did indicate this depended on economic indicators. With the low unemployment rate, it seems that Janet Yellen might start scooting away the punch bowl.

However, as Gould points out, while the number of unemployed has fallen, wages have remained stagnant, Europe and Asia have been weak. In spite of this, the party of QE has to be over at some point. However, it is more likely that Yellen will add less booze to the punch gradually rather than taking away the entire bowl.

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