In May of this year, Federal Reserve Chairman Ben Bernanke suggested to a congressional panel that the Fed could taper its policy of Quantitative Easing (QE). The obvious happened — the stock market took a quick hit, and interest rates spiked.

So Bernanke pulled a quick change, saying the Federal Reserve will continue an open-ended policy of QE, which artificially suppresses interest rates but immeasurably helps the housing, bond and stock markets. This was a calculated act to test the reaction of the markets.Their negative response validated what Bernanke already knew to be true, that the Fed is trapped in its magic policy of Quantitative Easing, and it’s going to be much harder to make it disappear than anticipated.

Bernanke will be exiting the Federal Reserve stage at the end of his term in January 2014, and returning to academia. I imagine he is glad to do so, leaving the possible tapering of QE to his successor. And, with only months left in his tenure as chairman of the Fed, it’s understandable that he would not want to show his hand and risk rocking the stock market.

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