Former Federal Reserve Chairman Alan Greenspan and a number of other market experts went on the offensive wit the suggestion that the central bank intervention was actually holding back stocks from achieving even higher levels, said James Frischling, president and co-founder of NewOak.
Greenspan wants the Fed to start pulling back on its open-ended third round of quantitative easing program, seeking the tapering process sooner rather than later.
“At its core, the sentiment from taper supporters is that the Fed’s policies are hurting confidence and keeping trillions in cash on the sidelines,” Frischling said.
He added, “The Fed’s dual mandate is to promote maximum employment and stable prices. While we understand the significant effects the Fed’s policies have had on the markets, it’s the improving, but still underperforming labor market and benign inflationary pressures that are keeping the Fed’s foot on the gas with respect to its accommodating monetary policies.”
While May’s employment report was positive and beat expectations, it still fell short of putting in motion the types of numbers needed to have the Fed change course.
On the other hand, the report showed economic growth is sufficentialy marginal to justify the central bank maintain QE3 in the near future.
“The Fed wants to see the results from the second quarter and the impact of higher taxes and sequester cuts on the economy. The taper-supporters believe the Fed is hurting confidence,” Frischling explained.
He concluded, “Consumer confidence currently stands at a 5 year high. Add to that the rebound in housing and improving employment picture and the picture is clear that tapering will come, but not because it will help stocks rally further.”