The dollar has fallen and stock and bond markets are rallying worldwide, all because Ben Bernanke told us what he and other Federal Reserve officials have, quite frankly, been saying ever since he laid out plans to taper bond purchases on June 19.
The chairman’s message then, as now, was that while the Fed might start gradually reducing its asset-buying, the broad thrust of loose monetary policy — and particularly record-low interest rates — will last for a long time. So why did investors perk up now whereas for a week after that June 19 press conference they acted as if the sky was falling?
The answer lies in the codependent, risky relationship in which the Fed and markets are now entangled.
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