Olivia Pratt
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The world’s best market timers: the Federal Reserve

The St. Louis Fed’s James Bullard is merely the latest official to boost the stock market

Bloomberg

James Bullard, president of the St. Louis Federal Reserve Bank: ‘If the market is right and it’s portending something more serious for the U.S. economy, then the committee would have an option of ramping up QE [in December].’

Things were looking grim last week, especially on Wednesday, when the Dow Jones Industrial Average was at one point down by 460.

The CBOE VIX indicator soared to the mid-20s for the first time in two years. Fear was palpable as investors had a classic panic attack.

But then, like the cavalry in those classic John Ford westerns, the Federal Reserve rode to the rescue.

James Bullard, president of the Federal Reserve Bank of St. Louis, said inflation far below its 2% target could lead the Fed to “go on pause on the taper … and wait until we see how the data shakes out into December.” The Fed is on track to finish “tapering” its extraordinary bond buying, or quantitative easing (QE3), at next week’s meeting.

‘They are afraid of the [stock] market going down and they will be blamed.’
James Bianco, president of Bianco Research

But, he added: “If the market is right and it’s portending something more serious for the U.S. economy, then the committee would have an option of ramping up QE [in December].”

Boston Fed President Eric Rosengren later said QE3 should end next week, but he could “easily imagine” not raising rates until 2016.

Translation: We’ve got your back. Don’t fight the Fed.

Investors got the message. The S&P 500 Index advanced for three straight days and the VIX fell under 20 again.

Bullard was only the latest Fed official whose words or actions “just happened” to boost the stock market when it was down.

“They are definitely in the market-manipulation business, and nothing has changed,” said James Bianco, president of Bianco Research LLC in Chicago and a longtime student, and critic, of the Fed.

Called the “Greenspan/Bernanke put,” the Fed’s willingness to jump in when stocks fall dates back a quarter-century.

“The put option is back. If the market sells off enough, they will give us QE4,” Bianco told me.

Conspiracy theorists have pinned it on a government “Plunge Protection Team” that wants to keep stocks from crashing at all costs.

By

HOWARD GOLD

COLUMNIST