Bernanke Buys Time for Further U.S. Recovery

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Sept. 19 (Bloomberg) – Rick Lacaille, CIO at State Street Global Advisors, discusses the Federal Reserve continuing its bond-buying program and what it tells us about the U.S. economy. He speaks on Bloomberg Television’s “The Pulse.”

Put it in context.

People were expecting $5 billion.

The balance sheets are over 3 trillion.

It is not necessarily a policy change issue.

Although you can rationalize the market move, it doesn't make it rational.

I see what you're saying.

In terms of the story going forward from here, the market now is a much more of a two-way story.

You have a question of when the fed is going to taper -- a lot more moving parts to understand.

I think most people thought they had a grip on what was happening.

They don't now.

What do we need to think about when we think about how the fed is looking at the economy over the next 6-12 months?

The ground is shifting.

If we fixate on the unemployment number, it is the same problem we have.

There is a lot of signals out there.

The participation rate has been miserable.

People are discouraged from applying.

How does illegal immigration look?

There are a lot of signals that might gauge the health of the economy.

Then you have the gridlock problem.

It is understandable that there is a tactical shift here.

Not to get fixated on what particular measure is the right thing.

It isn't a wholesale policy shift.

We know that qe is coming.

If you think about the value of the equity market, it is not going to be affected by whether we do 5 billion this quarter or 5 billion next quarter.

It is practically speaking not relevant.

How do you gauge what the fed is going to do now?

They gave us forward guidance.

They may have to come considerably below 6.5%. what should we be looking at?

You have to accept you will not be able to forecast the forecast very accurately.

What you can forecast is where we will be a little bit further out.

You know this is on the way.

You know that rates need to normalize and you need to build a cushion on bond yields.

We had that cushion earlier this year.

I am worried with the recent rally that cushion is being eroded.

If they are blocking up capital for a longer time.

Did they miss an opportunity last night?

I talked about rationalizing and not being rational.

A u-turn would be a sign of weakness.

If you were to start down the track of tapering and then need to go the other way, that would be damaging.

I can understand from that perspective, you may not wish to have a reversal of the course.

5 billion -- it is neither here nor there.

This is an emergency measure.

Has it become part of the normal lexicon for monetary policy in a way that he probably shouldn't? are we still in emergency territory?

Once you hit the zero limit, you have to look for other talks.

If the economy needs more stimulation than you can call in emergency measures.

It is a tool of monetary policy do need to employ.

It is an emergency when the banking system is in crisis.

It is hard to say that exists now in the u.s. maybe it does in europe but not in the u.s. the emergency is around the health of the economy.

Very quickly, they don't just buy bonds.

The housing market in the states is looking healthy.

Why aren't they still biting those?

The concern about the long end of the yield curve.

Mortgage applications dropped significantly.

I think the affordability levels are still very good.

Their concerns are a little overstated if that is what they are concerned about.

Stay with us.

We will look at the emerging markets and implications for other asset classes.

Rick joining us.

Let me tell you what else is on the radar screen.

It is not all about the fed.

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They are set to announce deals over the handling of last year's record trading loss.

Today marks microsoft's first sitdown with analysts in two years.

Steve ballmer and the team are likely to give more insight as to why ballmer is leaving and the company's reorganization.

They are expected to provide details on microsoft's purchase of nokia's handset business.

First-day sales of grand theft

This text has been automatically generated. It may not be 100% accurate.

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