Well, Yellen has shown her cards; we now know the hand she’s playing. The Federal Reserve will stay status quo. In testimony relating to her nomination and expected approval as the next Chair of the Federal Reserve, Yellen didn’t hold back, stating the low interest-rate environment allows the central bank to employ its loose monetary policy to drive the economy and not fear inflation.
As Yellen stated, “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.” (Source: Bull, A. and Spicer, J., “Yellen says stronger job growth a Fed imperative,” Reuters, November 12, 2013.)
Sounds just like good ol’ Ben Bernanke, doesn’t she? But then that’s what everyone expected from Yellen, who is known as a near-replica of Bernanke and his views towards the economy and the use of monetary policy.
Look, folks, the easy money from the Federal Reserve will likely continue for the foreseeable future. If Bernanke doesn’t decide to begin tapering in his last Federal Reserve meeting in December, it will be up to Yellen to bear this burden, and it appears she may drag it out. Perhaps Bernanke was hoping to begin the tapering process before the end of his second term, but due to a weak jobs picture, it’s not quite an option.
If I was a betting man, I’d put my money on Yellen maybe holding off until later in the first quarter of 2014 to begin tapering. Now, she may begin with a small amount in January, but that all depends on the jobs market in November and December, as she wants jobs growth.
The expectation of continued easy money will help support stocks in the meantime until the economy can deliver stronger results. Given this, the stock market will likely rise in the New Year, so you should make sure you are invested. Of course, this is unless consumer spending tanks during the holiday shopping season. If sales are soft, we could see a buying opportunity should the stock market pull back, so have some cash available for buying. Yet if the retail sales are better than expected, we could see stocks jump in December and into January.
Continued tapering by the Federal Reserve will also likely pressure the greenback going forward. If this happens, we could see some buying in gold and silver, which means there may be a trading opportunity emerging.
The reality is that despite the trillions of debt purchased by the Federal Reserve, the economic renewal across the country continues to be fragile and vulnerable to weakness.
In my view, Yellen will need to think about the overall ineffectiveness of the Federal Reserve’s quantitative easing and realize that something else must be done, other than printing money and pumping it into the economy.
Meanwhile, you can rest assured that there will be money to make in the stock market, so look for any correction to accumulate positions. And, of course, be sure to thank the Federal Reserve.
This article With New Fed Chair Unlikely to Taper, How Does Your Portfolio Profit? was originally published at Investment Contrarians