Date: March 20, 2014

Ben Bernanke Cringing

New Fed chair, Janet Yellen, presided over her first FOMC meeting this week with her first press conference yesterday afternoon. In short, as much as I supported her for the position, it’s crystal clear that she is no Ben Bernanke and has much to learn. On the positive side, she was very calm and took time to give thoughtful and detailed answers. I especially liked when she stated that the glide path to tighter monetary policy was going to be shallow, meaning that once the Fed began to raise rates it would not be a straight shot to the historical norms. Rather, it certainly sounded like the path to 1% and then 2% would be very gradual without committing to specific timetables.

On the flip side, Janet Yellen completely and utterly fell on her sword, stuck her foot in her mouth and any other appropriate analogy for making a huge blunder when she put an almost exact time frame of six month after QE ends to begin raising rates. As the words rolled off her lips, I immediately said “rut roh” and then watched the stock market crater. Defining “considerable time” as six months puts the Fed in a box and loss of credibility. I am sure she wishes she could unscramble those eggs, but that one statement is going to follow her for a long time, especially when the written statement doesn’t even hint at a specific time frame rate increases. Ben Bernanke would never, ever have done this.

If stocks don’t immediately right themselves, it looks like we will see new lows for March before stabilizing and heading back to all time highs. The bull market may not be over yet, but Janet Yellen certainly poured some cold water on it and the bears have their sights on 2015.


Paul Schatz, President, Heritage Capital