David Kotok, 5.5.13: No central bank wants to shock the economy the way the Fed did in the late 1930s, with its too-soon response. Chairman Bernanke, Vice Chairman Yellen, and their colleagues in the Fed’s governance structure are very familiar with Fed history and the mistake made in the 1930s. They have written about it and referred to it.
That experience suggests that they will err in the direction of waiting too long before removing QE or tapering the existing process. They will not be symmetrical in the decision-making process between too soon and too late: too late wins this argument. For investors, that means a prolonged period of very low interest rates, which are bullish for asset classes of nearly all types.
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