Tags: central | banks | curb | easing

Wall Street Journal: Central Banks Need to Curb Their Easing

Friday, 21 Jun 2013 01:27 PM

By Dan Weil

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While Federal Reserve Chairman Ben Bernanke's remarks Wednesday about tapering the Fed's quantitative easing threw financial markets into a tizzy, central banks around the world would do well to follow the Fed's lead, according to a Wall Street Journal editorial.

The Standard & Poor's 500 Index has dropped 4.3 percent since Tuesday, and the 10-year Treasury yield touched a 22-month high of 2.51 percent Friday.

Journal editors are perplexed as to why markets have reacted so violently to Bernanke's comments. He already had said the tapering might begin soon.

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"The selloff may be more than anything a side-effect of investor addiction to the world's central bankers," the editors write, referring to global easing programs.

"One explicit goal of the Fed's monetary interventions has been to push up asset prices . . . and it has succeeded. But to the extent those price increases are a function of speculative money flows . . . they were bound to correct eventually."

And the Fed is doing the right thing, the editorial says. "Central banks can't keep floating the world economy forever, and our view is the sooner the withdrawal begins the better."

Investors appear to be in a state of shock. “There’s been a change in the character of the [stock] market,” Hank Smith, chief investment officer at Haverford Trust, told Bloomberg.

“All of a sudden, when the Fed brought up the subject of ending QE, reducing their bond buying, that created a new level of uncertainty that didn’t exist before.”

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