This is a typical media story on the possibility that the Federal Reserve may not stop counterfeiting as much money in September as it is today — a position I have repeatedly maintained.
The basic assumption is this: the world’s stock markets are governed by fears of FED tapering, and little else.
Asian stock markets mostly rose Monday after expectations for an imminent phasing out of the Federal Reserve’s monetary stimulus program began to fade.
Such expectations are without foundation. The FED has issued a press release every six weeks saying that the present policy will be extended. But the media will not believe this.
Data released Friday that showed a drop in new home sales raised questions about the strength of the recovery in the U.S. housing market, a key piece of the overall economy. That led to speculation that the Fed might stick with its current monetary stimulus or only reduce it very gradually.
Why is the housing market dropping? Because mortgage rates are rising. Yet in the next paragraph, we read this:
The Fed has been mopping up government bonds and securities to the tune of $85 billion a month. That has held down long-term interest rates and made more money available for lending.
On the contrary, the FED’s purchase of $40 billion in Fannie/Freddie bonds each month has been accompanied by rising mortgage rates.
The young woman who was assigned the task of writing this story does not understand what is going on. Neither does her editor.
We are told that recent data have changed some analysts’ minds. The media keep reporting on this.
Recent data pointing toward an improved economy has led to speculation that the Fed would begin phasing out the program as early as next month. But the plunge in home sales caused some analysts to rethink their assumption that the Fed would start “tapering” in September.
The primary data have not changed. Unemployment remains high. Price inflation remains low. These are the two main criteria mentioned in every FOMC press release.
But the stories keep coming. The world’s stock markets are supposedly FED-governed, as if the central banks of Asian nations were not dominant in their respective domestic economies.