Warren Buffett on the Fed: Great Experiment, Greatest Hedge Fund
At Georgetown University in Washington on Thursday, Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) Chairman and CEO Warren Buffett told students that the U.S. Federal Reserve is “the greatest hedge fund in history.” The statement came in response to a question from a student — who called Buffett an “outspoken fan” of current Fed Chairman Ben Bernanke — about whether or not he thinks the Fed will continue its “controversial buyback program.”
The day before this question was asked, the Federal Open Market Committee concluded a two-day policy meeting and surprised markets when it revealed that it would not reduce purchases, and maintain buying $40 billion worth of agency mortgage-backed securities and $45 billion worth of longer-term Treasury securities every month.
Buffett first stated the obvious: the Fed did not change its policy because it did not see the necessary change in economic conditions. Over the past year, the Fed has refined its policy of forward guidance, repeatedly highlighting the various perquisites for a policy change. Chief among the conditions is a real and sustainable improvement in labor market conditions in the context of price stability.