Market Matters Blog

What goes up, does indeed come down.

The stock market pushed to new highs this morning as Federal Reserve Chairman Ben Bernanke told Congress that a premature tightening of monetary policy would carry substantial risk of slowing the economic recovery, and it would likely be several months before the Fed considered dialing back its bond buying program.

The stock market tumbled when the minutes from the Federal Open Markets Committee meeting in May showed dissention among the committee members of when to start pulling back its bond buying program, with some thinking it could be possible as soon as the FOMC's June meeting.

From surging up 155 points around 10 a.m. to closing 80 points lower, the Dow Jones Industrial Average had quite a busy day. The 10-year treasury notes are trading lower, too. The bearish part of the minutes: "A number of participants expressed willingness to adjust the flow of (asset) purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome."

The Fed has been buying $85 billion of bonds each month, and what traders really want to know is the Fed's exit strategy. The FOMC committee members appear to disagree about which indicators they should rely on. Bernanke's comments that it may be a few months before trims its bond buying makes sense in that context: what could they decide next month if they can't agree on what indicators should and shouldn't count? He's buying time to figure that part out.

Traders also want to what the Fed's exit strategy. From Bernanke's testimony, tapering off isn't a good way to describe it. Once FOMC members decide the economy is on stronger footing, they'll keep buying bonds, just not as many. And if the economy gets worse, they might ratchet purchases back up.

The Wall Street Journal's Real Time Economics blog said it best: The Fed effectively wants the markets to experience the same uncertainty it experiences about policy and the economy when officials walk into a meeting, and it wants to condition the market to avoid jumping to conclusions about what it will do next. As officials keep saying, it will depend on the economy."

What does that for farmers and farmland owners? The key is interest rates. Before the Fed will increase interest rates, the economy needs to be on a stronger footing. Unemployment must improve: 6.5% unemployment appears to be the magical number. The bond buying program has played a huge role in boosting the stock market, but that hasn't translated to a large increase in hiring just yet. Until it does, expect interest rates to stay near zero.

WSJ's Real Time Economics blog: http://blogs.wsj.com/…