Fed Credibility Took a Hit by Not Tapering: Matus

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Sept. 19 (Bloomberg) – Drew Matus, chief U.S. economist at UBS and Hardeep Walia, founder & CEO at Motif Investing, discuss the negative impacts of the Federal Reserve’s decision not to begin tapering. They speak on Bloomberg Television’s “Bloomberg Surveillance.”

Ubs, is the fed putting credibility on the line here, drew?

I think you can see that, the behavior of gold versus financial assets.

That is one of my cheap ways of looking at credibility.

If you look at the performance of those two, the fed took a hit yesterday.

Look, i understand i'd am aggravated i got my call wrong, and part i am aggravated because everybody got the call wrong.

I am an economist, i am used to being wrong.

At the same point, if you think about opportunities is in themselves to exit from quantitative easing, they are few and had a great 1 -- y? -- why?

Because the next time they tell us they are tapering, we will think they will blink again.

Because that is what they did yesterday.

We set the market operate taper, rates one of too much, we were a little scared of that, even though there was really no great evidence that it was slowing down the economy, that rising rates.

You and i both agreed to chairman looked tired yesterday.

It was very different.

I want to take this bigger and broader, macro economics.

I want to look at a chart, folks, which is my chart of the year last year, chairman bernanke at a news conference yesterday, this is my chart of the year -- this is the backdrop.

Median household income, adjusted for inflation, sara, we went up to 1998, and it is a new america.

Here is the data point reported three days ago.

Lower and flat income.

That is the ultimate challenge the government has and the federal reserve has.

We link this to an america flat on its back.

We do not have economic growth, do we you go -- do we?

With two things going on.

The housing market, very good paying jobs for people who don't necessarily have college degrees.

So it is the ultimate -- if you want to understand men across america, you don't look to manufacturing.

You and the chairman-based optimism on a better than good housing market.

In this september, we do not have accurate -- have that.

We have a lot of pent-up demand for housing.

We have not built up enough homes, or the amount of supply is probably restraining sales.

I think we have to really consider that, but at the same point, the whole income story is playing out because we also have -- if you think of all the things that are actually driving the economy forward in terms of technology, etc., what you have there are disproportionate returns to education.

We were talking about this in the break.

It is not just getting a college degree.

I think that is where people get lost.

It is getting a college degree in something that matters and actually having done something in your four years at college.

That is an interesting point, true.

If you look at the impact of fed policy, stock market rises, and it is the market impact.

This chart that tom shows on income, the inequality that we are seeing in this country, if the fed exacerbating that?

Know -- well, i think they made a mistake yesterday, so i would say yes, but it is unintentional.

Chairman bernanke more than any other fed chairman in history is worried about income inequality because they create instability and capitalism.

The problem of course is that capitalism historically is the best way to address income inequality.

What you end up with is some people who do really well, but if you look at poor people today versus the king of france in the 1700's, poor people today have a better lifestyle than the king of france did, would you not agree.

What they did yesterday is essentially an plate assets -- in plate assets.

-- inflate assets.

They savers would get hurt.

What would argue it is actually broadening -- jenny on has been good at this, is the chairman -- janet yellin has been very good at this.

If the policies for the hasseyves?

They are trying to address this and solve things.

Any sort of social planning tends to break down.

That is why capitalism tends to be the best -- we actually have an index called the income inequality index that actually tracks this.

It has been growing as a result lately.

So we do take a serious look at this.

Somewhere i read you should fact check it, but our coefficient is worse than brazil right now.

Inequality was one thing i was talking about, the other factor here is the bubbles.

Is there a risk of some serious bubbles in the financial asset market?

I think that there is a risk that every time you try to pull back, the market is going to have a disproportionate response to it, therefore you are going to continue with your same policy.

I am not sure it is a bubble.

One big problem is that the budget deficit is going to drop dramatically this year, and the fed's purchases as a percentage of net issues is going to go above 100%. so the fed is actually monetizing the u.s. treasury market, and they are doing so in a much more direct way, and they are saying they cannot pull back because of all of the spending issues that are going on.

We will continue this discussion.

Remember, 50,006 every sex -- 50676.

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

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