QUESTION: “…the best way to get interest rates up is to have low interest rates” —Fed Chairman Bernanke responding to a Congressional testimony question (not today)
FED SAYS IT IS PREPARED TO INCREASE OR REDUCE THE PACE OF PURCHASES.
So what about this double talk?
What are they trying to do?
Where do they want to go?
ANSWER: Bernanke is actually speaking the truth. The best way to get interest rates to go up, is to have pushed them lower. The Fed bought back the long-term and shifted the debt short-term. This increases the potential volatility. Then we have the insolvency of pension funds and others who cannot deal with the earning nothing on money offered by the bankers – 0.5% for 3 years. This forces capital to shift and invest which is why the Dow has done so well. That is why the best way to send interest rates high is to suppress them forcing the supply to shift. The Fed could not do that by itself.
By saying it remains nimble ready to increase or decrease interest purchases is a reflection of what he see in this shift in capital. We may see the Dow make a sharp brief correction, then swing to new highs in a phase transition. The classic false move before the breakout.