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A responsible Fed Chairman must speak in measured tones, as the least mistake of nuance can make the markets gyrate uncontrollably. Thus, Chairman Ben S. Bernanke signalled that the Fed will continue to pursue a strategy of low interest rates, noting that “significant economic challenges remain”.

However, responsible business analysis requires that one speak in less measured tones. Basically, Bernanke is telling us that the economy still sucks, that chronic joblessness will blight the economic scene for the next year and that the Fed is determined to keep interest rates low so that financially stressed banks can heal themselves. Banks will funding themselves in the short term markets at near zero rates, invest or lend at much higher rates and pocket the difference to repair their balance sheets.

Continued low interest rates will keep the dollar under pressure, and intensify the risk of developing asset bubbles as financial institutions take advantage of cheap, plentiful cash.

Caveat investor, Caveat taxpayer!

See full story at Bloomberg.com

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