The US Federal Reserve has a new policy–the Bernanke put. unlike the “Greenspan put”, the perception that Allan Greenspan’s Fed would cut rates aggressively to baial out equity maqrkets, which is the latest move by Ben Bernanke’s Fed benefited bond markets.
Tuesday’s decision was actually very modest. Instead of slowl shrinking it as bonds matured or borrowers refinance, the Fed will keep its holdings of Treasuries and mortgage bonds at $2054 billion.
This telegraphed the Fed’s concern about the anaemic economy. In addition, the market now believes that Mr Bernanke has convinced fellow Fed policymakers to share his deep concern of deflation. To a lot of investors in the field, it means that future weak economic data will be met by further quantitative easing, printing money to purchase assets.
The danger is that this interpretation becomes self-fulfilling. But it is not yet certain that this will be the outcome.