Endless Silly Rumors About the FED’s Exit Plan

I read this in an article about the decline in the U.S. dollar-denominated value of the Australian dollar. “That decision plus growing talk that the U.S. Federal Reserve is close to a decision to start unwinding economic stimulus, has seen the Australian dollar fall by more than 6% since the start of May.”

Bernanke’s FED has been uncharacteristically clear about the unwinding of its policy of counterfeiting a trillion dollars a year. It is not going to happen until unemployment reaches 6.5%. That is as clear as any FED chairman is likely to be.

Bernanke will be out of office by the time the unemployment rate reaches 6.5%. The FED may shift its policy before unemployment reaches 6.5%, but it will not happen on Bernanke’s watch. That would mean either that he had publicly abandoned his specific guidelines, or else it would mean a palace coup had taken place in the Board of Governors. There has been no sign of anything like the latter in my lifetime.

There is an addiction of rumor-mongers regarding the FED’s next move with respect to QE3. They can’t leave it alone. That rumors like this in some way shaped the fall of the Australian dollar — or anything else — is highly unlikely. But the rumors keep getting into media reports that are written by low-salary reporters whose opinions count for nothing in the currency markets.

The markets today are run by computer algorithms, not rumors about the Federal Reserve’s exit plans, for which there is no evidence.

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