The Source of Bernanke's Red Face, John Taylor, Speaks Out

It was only a few short months ago that a senator schooled Bernanke on his misinterpretation of the Taylor rule, which Bernanke has used to justify ultra-loose monetary policy and QE. While the scuffle in the Senate was chalked up to "Bernanke says this, Senator says the opposite-who's really on first base?", it didn't take long for the question to be answered. John Taylor of the now famous "Taylor Rule", modifications aside, blogged the very next day that Bernanke did in fact misinterpret Taylor's rule in favor of a later spin-off which Taylor never endorsed, thus Bernanke who was trying to justify his stance in hiding behind Taylor, was quickly red faced when Taylor stepped to the side and said, "No, I never endorsed the variant rule that Bernanke has used as a key rationale for his economic policy".

Well, for all of those QE-crack heads that are hoping the market will dive far enough to force Bernanke into QE3 so they can buy the dip again, they too may be disappointed with Taylor's latest release which can be summed up as, "Interest rates to 1%, (which would be between a 75 and 100 basis point hike) and NO MORE QE!"

From Taylor's Blog


"So I think the economy would be better off if the Fed started moving to a higher funds rate now rather than later, and I certainly see no rationale for another round of quantitative easing. Unfortunately, it looks like the Fed will continue with its zero interest rate for a while longer, and traders will continue to debate whether or not there will be a QE3 adding volatility to the market."