In at least one way, CNBC and the Fed share an unspoken “third mandate”. While according to Congress, the Fed is responsible for maintaining stable prices and low unemployment – and CNBC proclaims to be a purveyor of real-time news and analysis – both organizations have also taken it upon themselves to help prop up asset prices. For anybody who doubts CNBC’s perennial bullishness, just take a look back at all of the talk about ‘this is what a market bottom looks like’ that has occurred this week.
And while CNBC has typically laughed at market “conspiracy theories” like the notion that the Federal Reserve has used asset purchases and low interest rates with the explicit goal of propping up stocks, once in a while, a rare nugget of truth slips out.
During a segment on Friday morning’s “Squawk on the Street”, Vinay Pande, head of trading strategies for the wealth management unit at UBS Group AG, said during a discussion about QE that the Fed’s easy money policies and their impact on asset prices has been far more nebulous than many economists would have viewers believe.
CNBC’s Sara Eisen reacted to this with a mix of surprise and incredulity, and apparently couldn’t stop herself from pointing out that “everybody” agrees that the Fed’s policies resulted in a very specific outcome – namely, they sent asset prices higher.
Vinay Pande: “I have not met two economists who agree on the impact of QE…”
Sarah Eisen: “But every body agrees that it propped up the stock market.”
Pande: In the sense that it conveyed that the Fed was serious – it was a signaling tool…
Pande then contrasted the Fed’s QE with the BOJ’s. The BOJ bought stocks directly, which definitely propped up the country’s equity market, while the Fed stuck with bonds, and didn’t buy stocks outright.
Setting aside the fact that plenty of economists agree that QE directly propped up the stock market, Pande is effectively arguing that the act of buying trillions of dollars of assets isn’t what sent stocks higher in a virtually uninterrupted rally over the past eight years. Instead, he’s saying that the Fed’s asset purchases were merely a “signaling tool” – ie that the impact on markets from QE1, QE2 and QE3 was purely psychological. Which of course, ignores Bernanke’s infamous WaPo oped which explicitly said that the unstated purpose of the Fed’s “price stability” mandate is to boost the “wealth effect”, i.e. ramp up markets, to wit:
“higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
Hence the laughter at the stupidity (or merely propaganda) of anyone who still claims that the Fed did not prop up the stock market.