Is the Fed having difficulty making up its mind?
When the Fed announced that they would put off changing their asset purchase plans, I wondered if Ben Bernanke was playing Hamlet: “To taper or not to taper, that is the question.” All along, he and the other governors have been uncertain as to what they might or might not do, because the economy is uncertain.
It reminds me of Shakespeare’s great play, where the hero learns that his uncle had murdered his father in Act I, and is ready to kill his uncle in Act III, but at the last moment puts up his sword because the time isn’t right. Indecisiveness proves to be Hamlet’s undoing.
Is indecisiveness plaguing the Fed? We’re certainly seeing it in other branches of government: Larry Summers will be the next Chairman, then Janet Yellen will; we’re about to bomb Syria, then we aren’t; the House will vote to de-fund Obamacare, or won’t. Everyone’s getting into the act.
But indecision breeds uncertainty, which isn’t good for the economy or for markets. There may have been a relief rally in stocks and bonds on Wednesday, but it’s unclear how long it will last. It is hard for managers to move forward when they don’t know what will come next out of Washington.
And where will this lead? Hamlet postpones action in Act III, and Act V doesn’t end well. Let’s hope the Fed’s irresolution doesn’t fall on all our heads.
Douglas R. Tengdin, CFA
Chief Investment Officer