The only thing missing was a soundtrack from Radiohead's Jonny Greenwood.
One of the first things I saw on cable television in Mumbai Thursday was a BBC report on the latest decision of the Federal Reserve's policy committee. The BBC clearly sensed what we in the chronicling business call a "moment." The Fed had made clear that it would end its third asset-purchase program at the Federal Open Market Committee's October meeting. Policy makers obliged. Quantitative easing, or QE, is over.
That allowed the BBC reporter to go with a report that contained an egregious oversimplification of what the Fed has been doing. Behind images of greenbacks racing past on the presses at the U.S. Bureau of Engraving and Printing, the BBC's man informs his viewers that "these dollars" now will be coursing through the U.S. economy without the help of monetary stimulus.
Cue the foreboding music. Will those precious creatures survive out in the big bad world on their own? Is kindly Fed chair Janet Yellen really just a cold-hearted central banker with little regard for her actions?
Most of the news reports on the Fed's policy statement Wednesday weren't really news. QE effectively ended in early October when the Labour Department reported that the unemployment rate dropped to 5.9 per cent in September and employers added more than 200,000 positions for the ninth time in 12 months, one of the most consistently strong periods of sustained jobs growth on record. The Fed's leaders decided in July that they would end QE in October so long as the economy continued to strengthen. The most recent jobs numbers were irrefutable evidence that it had.
There still is plenty of stimulus to help those dollars make their way through the U.S. economy. The Fed's benchmark interest rate remains pinned near zero. The yield on 10-year Treasuries is creeping higher, but still is only about 2.3 per cent. A credit-eligible American can get a 30-year mortgage at a rate of about 4 per cent. Sixty-month automobile loans can be had at interest rates of about 3.25 per cent, according to Bloomberg. That's not quite free money, but it's not bad.
The surprise Wednesday was the Fed's assessment of the economy. "On balance, a range of labour market indicators suggest that underutilization of labour resources is gradually diminishing," the statement said. That was an important change. The jobless rate actually has been signalling for a long time that the U.S. economy could be overstimulated. Former Fed chairman Ben Bernanke distrusted the signal, and Ms. Yellen has been equally circumspect since taking over in February. The October statement marks the first time the Fed has stated that all its favourite employment indicators finally are pointing in the same direction.
"The Fed effectively shifted from an aggressive easing bias, toward a tightening bias," Tom Porcelli, chief U.S economist at RBC's investment banking arm in New York, advised clients in New York. As Mr. Porcelli reminded his readers, any changes the Fed makes in the future are contingent on economic data. However, the Fed took a definitive step Wednesday toward raising its benchmark interest rate for the first time since 2006.
There was no hint in the statement that the Fed was prepared to launch QE4 if its growth or inflation outlooks turn out to be horribly wrong. That's probably because the Fed is confident the U.S. economy has too much momentum to get knocked sideways by an external shock. At a time when financial markets are full of worry about a weak global economy, the Fed policy had nothing to say about what was going on in the rest of the world.
The other noteworthy aspect of the Fed's announcement happened hours after officials had gone home and possibly even to bed. Asian financial markets opened higher. The mere suggestion of the end of QE by Mr. Bernanke in the spring of 2013 caused a minor panic. Money rushed out of emerging markets, causing major headaches for policy makers in those countries. The actual end of QE was met with higher stock prices in Japan, China, India and elsewhere.
That's a testament to Ms. Yellen's communications skills. She carefully conditioned market participants to follow economic indicators just as the Fed does. Investors and analysts had been ready for the end of QE for weeks, if not months.
The next test for Ms. Yellen will be preparing financial markets for a higher benchmark rate. On Wednesday, the Fed reiterated that the federal funds rate would remain unchanged for a "considerable period." Policy makers are moving carefully; no need to follow up the 2013 "taper tantrum" with a 2014 "hike fright." The Wall Street consensus has been that the Fed would begin raising interest rates at the start of the summer of 2015. If U.S. hiring data remains strong, the first increase could come sooner.
Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation.
Special to the Globe and Mail