Federated's Month in Cash
Federated Investors' latest "Month in Cash" is entitled, "Bernanke to Congress -- Easing works". Money Markets CIO Deborah Cunningham writes, "Ben Bernanke's testimony before Congress late in February provided no real surprises. The Federal Reserve (the Fed) chairman strongly defended the level of the Fed's asset purchases across its various quantitative easing programs, while simultaneously downplaying the risks of over-accommodation, including the potential for losses and market disruption, when the QE program eventually winds down. Bernanke also downplayed the risk of a "reach for yield" in the markets -- the idea investors desperate for returns in such a low rate environment are going further out the curve and down the credit spectrum than might be prudent. In his testimony, Bernanke acknowledged this may occur, but countered the Fed's easing policies actually reduced overall risk by improving the larger economic environment. Of course, if the economy continues to recover, the migration toward lesser credit investments might not have as much of an impact, but if investors add too much duration risk in a quest for higher yield, the Fed is going to have to keep a close watch and take action. Bernanke may be unconcerned by the risks of open-ended easing, and the delicate process of unwinding, but the markets themselves are. There are a lot of questions swirling around over how long QE can go on, and what happens when the music stops. The latest Federal Open Market Committee (FOMC) meeting minutes revealed more members are beginning to have the same questions as the markets do as to how long this can go on and how we get out of it. And in weeks since the meeting we've seen some public comments by regional Fed presidents openly questioning the current policy direction. Still, what matters in the end is the vote, and FOMC meetings don't, traditionally, end up in closely split voting. Despite the increased level of questioning that took place during the meeting, the most recent Fed statement had, as has been the case for so long, just one actual dissenting vote. That's not to say that dissenters won't have an impact, it's just that changes in Fed policy, when and if they happen, will take place behind the scenes, the new transparency notwithstanding."
