Markets are shrugging off worse than expected news from housing, Chicago Fed Activity and the Dallas Fed in preference for the Ben Bernanke comments that some claim hints at QE3. The key parts that investors were reading into:
“To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.
I also discussed long-term unemployment today, arguing that cyclical rather than structural factors are likely the primary source of its substantial increase during the recession. If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well.”
Is that pointing to more easing? Goldman’s Jan Hatzius is not so certain. He said:
“On monetary policy, the Chairman said that faster growth—perhaps needed to see further declines in unemployment—“can be supported by continued accommodative policies”. He also argued that because the increase in long-term unemployment was primarily cyclical, “then accommodative policies to support the economic recovery will help address this problem as well”. These statements were not necessarily calls for additional easing, but they clearly supported the Fed’s current accommodative stance.”
Many analysts and pundits appear to be taking the Fed Chief’s comments as a hint at new easing. I don’t see it. His comments were pretty much exactly what he’s been saying all along. The economy is weak and he’s going to remain accommodative. But these new comments don’t hint at new easing policies. And I still maintain that the Fed will be on hold unless the wheels really start to come off in the coming months. I guess we can conclude that the Bernanke put is well in place.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.