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The Economist's Greg Ip Says Fed Has 'Lost Their Faith' In Expanding Balance Sheet

The Economist's Greg Ip Says Fed Has 'Lost Their Faith' In Expanding Balance Sheet

The Economist's Greg Ip appeared on CNBC's Squawk Box on Thursday morning where he discussed the ups and downs of the Fed maintaining low interest rates while tapering down bond buying.

"I'm puzzling over why the market is so excited over [tapering]," Said Ip.

"If you go back to May when [Chairman Ben Bernanke] tanked the market saying he was going to start dial back the purchases. He said almost exactly the same."

He went on to describe the prepared testimony Bernanke delivered in May in which he also describe tapering, in a slightly different sequence from yesterday's statement. It resulted in a market collapse. In July it resulted in rallying, Ip said.

Related: Markets Get Bearded As Bernanke Reiterates Easy-Money Policy Is Here to Stay

Bernanke has emphasized keeping short-term interest rates low only until the unemployment rate is 6.5 percent or lower, meaning that they would rise once that number is hit, but now he's changing his tune.

"He's starting to walk back from that guidance and say 'We can stay at zero much longer than that,' " said IP.

"Maybe that's what the market is excited over."

Bernanke did say that if the run up in rates was severe enough that it begins to impair economic outlook, then he would have to "push back," Ip said quoting the Fed chairman.

He also noted that the Fed has two ways of delivering easy monitory policy, "and they are hence forth going to emphasis the low interest rate for years to come, and dial back on the bond purchases. For reasons that Bernanke has yet to make clear they seemed to have lost their faith in the desire of expanding their balance sheet as the main impetus for they keep monitory policy easy."

Posted-In: News Bonds Politics Topics Events Economics Federal Reserve Hot Best of Benzinga


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