Here’s the portion of the Fed’s statement that settled the stock markets down, yielding an impressive bounce, at least for now:
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. (emphasis added)
Mid-2013 is two years off. Bernanke and Co. have made a hollow promise. There is no way Bernanke can know what things will be like in 2012, nor even in the latter half of 2011; he didn’t even know last month what things would be like this month, yet the people heard his promise and trembled at his power. The markets trust Bernanke like the ancient Hebrews trusted Moses:
When the people saw the thunder and lightning and heard the trumpet and saw the mountain in smoke, they trembled with fear. They stayed at a distance and said to Moses, “Speak to us yourself and we will listen. But do not have God speak to us or we will die.” (Exodus 20: 18-19)
Thus Yahweh has spoken.