Jon Hilsenrath at the WSJ has been THE mouthpiece for Bernanke for the past few months. Bernanke has been telling him what is on his mind and Jon prints it.
That the debate on monetary policy is being conducted like this has been one of the big mistakes at the Fed this fall. Today Hilsenrath has leaked more of the maestro’s thinking. This time it is a big shocker to me.
Bernanke has apparently heard all of the opposition to his mega QE-2 plan, and he has changed the scope of QE-2 as a result. From the Journal today:
The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months.
A few hundred billion? What happened to the $2 trillion that Goldman thinks might be the result? To prove that Bernanke is having second thoughts on a major expansion of QE he gave this quote to the WSJ:
Mr. Bernanke has used the analogy of a golfer with a new putter: Unsure how it will work, he finds best strategy is to tap lightly at first and keep tapping until the golfer figures out how best to use the putter.
A putter? Does Mr. Bernanke think this is a game he is playing? He is saying that he has never putted before, has no clue how to do it, so it it is best to tap lightly? What kind of monetary policy is that? “Learn as you go”, does not make me feel that there is much hope.
I warned of a possible QE-2 Mini recently. The opposition to a broader program from other Fed members and the huge public outcry against currency manipulation (QE is currency manipulation) has forced Ben to back off.
The market will be very disappointed should we get a QE Mini. A program that says, “We’re going to buy 200b in two months and then see“, will do nothing favourable to the markets. I would argue that the markets could be sadly disappointed by this.
The Fed has tried to manipulate both markets and public sentiment with its leaks of strategy. They got the world to believe that something massive was coming and now we will learn that it’s a “No big deal“. The Fed should shut up. They should not leak more disinformation. They set us up for a monetary program that would have tipped the scales. Now they have to back up because they realise the scales would not be tipped, but broken. The consequence is going to be for a bursting of expectations. Risk Off.