Markets Tell Bernanke to Take His Optimism and Shove It

thenews 2013.06.21 18:02

The person with the most influence over the global economy was—given the required soberness of his position—practically ebullient. The committee he leads “sees the economy continuing to grow at a moderate pace,” he said. “Job gains, along with the strengthening housing market, have in turn contributed to increases in consumer confidence and supported household spending,” he added. “The downside risks to the outlook for the economy and the labor market have diminished since the fall.” The bad news is that unemployment remains too high, he said, but to fight that, his committee is committed to continuing to stimulate the economy with an unprecedented amount of bond purchases until the situation has meaningfully improved.

Markets responded to Ben Bernanke’s bullishness as if the Federal Reserve chairman had said the economy was in a terrifying freefall. Bernanke spoke at a press conference June 19; stocks fell and the yield on U.S. government bonds surged as the words came out of his mouth. The next day, the Standard & Poor’s 500-stock index fell 2.5 percent, its biggest one-day drop in a year and a half, as stock markets and government debt sank worldwide. The ongoing rout in emerging markets got worse, and gold fell a painful 5 percent.

Bernanke wasn’t the only factor in the selloff—there was troubling data out of China—but the retreat is still remarkable given how broadly the central bank chief said the U.S. economic recovery is progressing. By purchasing $85 billion per month of Treasuries and mortgage debt, the Fed has kept interest rates low and pushed investors into riskier assets such as stocks and foreign bonds; now traders are worried about that money spigot getting tightened, even with Bernanke swearing up and down that it will happen only when the American economy can stand on its own strength.