Thanks to the Fed's tapering, a wider public is becoming aware of currency instability in diverse economies, from Turkey to Argentina, and India to Indonesia. Indeed, on Tuesday night Turkey raised overnight interest rates by a whopping 4.5% to 12% in an attempt to stop a run on the lira.
The dollar strengthened a fifth day versus the euro as U.S. consumer spending rose the most in three years a day after the Federal Reserve scaled back bond purchases that weaken the greenback and support global asset prices.
The Wall Street Journal is on the hard-money side of the debate over recent monetary policy. But its editorial on the departure of Ben S. Bernanke as chairman of the Federal Reserve articulated a conventional wisdom that transcends that debate.
The market has continued to consolidate higher this morning as it searches to test resistance at 1780-82.25. Yesterday's close was 1771.25, the market must hold this level and truly close above the pivot at 1775.75-1776.25 to keep sentiment positive.
U.S. stocks fell, with the Standard & Poor’s 500 Index headed for a one-month low, while Treasuries and the yen gained as the Federal Reserve said it would make further reductions in economic stimulus and as emerging-market currencies weakened. Gold and natural gas climbed.
The January statement released minutes ago is practically identical to the prior month and contains the highly anticipated continuation of measured reduction in the monthly pace of bond purchases. The FOMC voted unanimously, and we don’t recall off hand the last time that happened.
Most of us in the West know, or should know, that all things being equal it is best for the Federal Reserve not to intervene in the economy. We prefer market forces to work. But of course all things are not equal.