The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
On March 15, 2009, Federal Reserve Chairman Ben Bernanke told "60 Minutes" that "green shoots" were already evident in the economy. However, since then the Fed has primarily acted to further boost economic activity rather than address any inflationary concerns from potential excessive growth.
Specifically, they have: completed QE1 and QE2 totaling an expansion of their balance sheet to nearly $3 trillion from under $1 trillion, instituted "operation twist" in an attempt to drive down long term rates, and most recently instituted QE3 which is an open ended plan to continue expanding the balance sheet. Some have dubbed QE3 "QEternity."
But the green shoots we see today are much stronger than those recognized by Bernanke 3 ½ years ago. In particular, the unemployment rate has dropped below 8 percent, employment growth has remained steady, home prices seem to have stabilized recently, and corporate cash stockpiles have grown providing potential for future investment.
So why isn't the Fed talking up the economy today as they were in early 2009 - when the outlook was much worse?
In my opinion, Bernanke was simply using one of the Fed's time-honored tools in an attempt to manage the economy: communication.
In 2009, market participants were in desperate need of confidence and Bernanke was simply trying to provide some by pointing out the very few positives of the day.
In contrast, today the Fed has longer term concerns about economic growth and is using the only tool they have - monetary policy - to reduce the cost and amount of funds for use by market participants.
Focus on Fed activity vs. Fed rhetoric. The Fed's communication tool can be useful at times, but often it is a contra-indicator.
For more on our economic views and data, please review our latest Quarterly Economic Report.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
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