Happy days are returning to Wall Street, in an unusually vivid illustration of the “circularity problem.”
Wall St. advances for third day after Dudley comments
NEW YORK (Reuters) – Stocks climbed for a third straight day on Thursday as concerns receded that the Federal Reserve would begin to unwind its stimulus efforts earlier than expected. . . .
“The Fed had to be shocked at how much of a move Bernanke’s testimony generated … so now it is trying to alter expectations,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati.
William Dudley, head of the New York Federal Reserve, said Thursday the Fed’s asset purchases would be more aggressive than the timeline Bernanke had outlined if U.S. economic growth and the labor market prove weaker than expected.
Dudley stressed that the timeline for slowing the pace of the Fed’s bond buying would depend not on calendar dates but on the economic outlook, which remained unclear.
“The Fed got ahead of itself talking about tapering, since the data remains very mixed but consistent with the sub-par two percent growth trend,” said Sargen, who helps oversee $45 billion. “The message now is that investors need to hang on.”
Note that economic growth is very likely to prove weaker than the Fed expected. If the Fed really thought austerity was slowing the economy, why did they have such a high growth forecast for 2013?
I vaguely recall Dudley was a cartoon hero, rescuing the damsel in distress (the US economy in this case) from the evil villain (Ben Bernanke, with a beard instead of the handlebar mustache most villains have.)