It turns out that Thursday’s market scare over a Jon Hilsenrath “Fed exit strategy” article wasn’t just hot air. Hilsenrath, widely acknowledged as the Fed’s inside man, wrote an important piece over the weekend that discussed how the Fed is beginning to map their potential exit strategy.
We need to be careful about overreacting to this piece. After all, it’s not the beginning of the exit strategy – more like a feeler to see how the market will respond to the concept. In other words, the Fed is starting to feed the market some clues about how the unwinding of QE might take place, but they’re not saying the unwind is set to begin. Here’s the key paragraph from the article:
“Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated.”
In other words, this isn’t even something that’s on the calendar yet. As I mentioned last week, the timeframe for Fed easing is still far out into the future and I don’t think this changes anything. The Fed is starting to float feelers into the market to set expectations. That’s all. The Bernanke Fed has been excellent at communicating future policy with the markets. And I think this is another clear message that screams:
“Do not panic, but we’re considering the eventual exit strategy from QE. But it’s also not something we’re planning to implement in the near future!”
I’ve given the Bernanke Fed a lot of trouble over QE, but communication is one thing no one can criticize them for. And this message appears very clear….