Goldman's Take On Ben's Remarks: "Probability Of Easing Over Next 6-9 Months Is Higher Than Probability Of Tightening"

Tyler Durden's picture

Some "bold" conclusions from Goldman's Jan Hatzius

1.    Fed Chairman Bernanke delivered a balanced assessment of the policy outlook, saying that the economy could evolve in a way that would “warrant a move toward less-accommodative policy”, but that persistent weakness in activity and renewed deflationary risks would “imply a need for additional policy support”. In contrast to our expectations, the prepared remarks included a list of potential easing options—communication changes, changes in the interest paid on reserves, and security purchases. We see this as an upgrade of the seriousness of the easing discussion on the committee, and therefore interpret the speech as a moderate dovish surprise (the easing options were already discussed in the last post-FOMC meeting press conference).  We believe the probability of easing over the next 6-9 months is higher than the probability of tightening. 

2.    On the outlook his remarks were in line with our expectations. He noted moderate growth in the recovery to date, held back by the household sector in particular. Chairman Bernanke said that the latest employment report attested to the weakness in the labor market. As in other recent remarks, he continued to point out that some factors holding back growth will likely prove temporary, and that the committee still expects an acceleration in the second half.

3.    His remarks also included a discussion of the efficacy of QE2. He said that the FOMC “did not expect it to be a panacea for the country’s economic problems”, but that the program had the effect of “reducing the risk of deflation and shoring up economic activity”. He added that $600bn in Treasury purchases was likely equivalent to a funds rate cut of 40-120bp (our own estimates are at the lower end of this range). 

4.    There were no prepared remarks on the debt ceiling, but it is now coming up in the Q&A.

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Mongo's picture

Ron: Is gold money?

Ben: No



What does it all mean's picture

This is all jawboning.  (by GS.)  How can the fed ease further?  QE 2.x or QE 3.0?  The fed fund goes to -0.25%?

Seriously, this is a serious question.

plocequ1's picture

This is all jawboning

No it's not. 

eureka's picture

Right, it's not, because the ponzi continues till US empire collapses, if you don't make things - you have to make UP things.

Informative article on the Blowhorn today about the wondeful works of the masters of the universe - a.k.a. Walll Street's Casino-Math-Wizards (OMG they're just like Harry Potter!).

Gamble for empire - if it makes you feel better about yourself - gives you a sense of purpose in life - it may or may not replace your inability fo love your country, your fellow man, the world - and God.

Fish Gone Bad's picture

Bernanke is such a piece of shirt! 

eureka's picture

The Fed can ease further buy buying more bank garbage assets, and by lending banks money at the socalled discount window at zero percent interest, and by putting caps on treassury yields, and by buying more treassuries - all of which are card-house games - i.e. US government and US banking sector making up paper "assets" - and the Fed and the Goververnment WILL KEEP DOING THESE THINGS AND MORE - IN ORDER TO KEEP US EMPIRE GOING.


Anyone who thinks they are a Libertarian - must decide to give up US empire - or be a philosophical moron. Empire is the antithesis of Libertarianism. Those who are still proud of US military might and US world occupation ARE IDIOTS. They have no business on a Libertarian anti-Fed website. US empire is THE only reason for the Fed to exist.

US Fed + US military = US empire. On e cannot exist without the other - just like US + CHina = co-dependent centralized plan-economies.

No more proud hegemon speak from zerohedge commentators, please. I call out every hegemon here: stuff your hard nationalism or admit that your anti-Fed stance is hypocrisy.

Mike2756's picture

Wow, they get paid for this?

bigdumbnugly's picture

nothing like going out on a limb.

Bay of Pigs's picture

QE is set in stone. No question of that now

Bernanke also just said "gold is not money".

What else do we need to know? 



Cleanclog's picture

Gold is not money because central banks can't devalue it => central banks love their fiat!  And thinking of the car and "Fix It Again Tony" . . . Fund it Anew Trichet?

Tense INDIAN's picture

what might happen to the Nifty tomorrow with this QE3-kind of whisper

Rainman's picture

The Eurozone is the crazy aunt living in Ben's basement. " Policy support " may end up being a prop for the money funds. 

Careless Whisper's picture

Do you have any "bold" conclusions from Los Zetas?

Hondo's picture

The probability of any rational macro prudential policy out of the FED or Washington is 0% over the next 6-9 months.........I'll put some big money on that!!

Hedgetard55's picture

Stocks again forget that they have to FALL before QE can rescue them. DOH!

dracos_ghost's picture

Here's my predictions:

- There is a 50% chance of easing or a 50% chance of tightening.

- The markets will go up and down on a daily basis over the next 6-9 months.

Phew, this Ekonomist thing is easy.

Whatta's picture

Does this mean Risk On for the next six months (interrupted by short down jerks caused by "sudden concerns" for some various bankrupt European Country)?

jack stephan's picture

Old Indian: Once upon a time, a woman was picking up firewood. She came upon a poisonous snake frozen in the snow. She took the snake home and nursed it back to health. One day the snake bit her on the cheek. As she lay dying, she asked the snake, "Why have you done this to me?" And the snake answered, "Look, bitch, you knew I was a snake."

GFORCE's picture

He has to ease or it's game over. Soap opera.

monkeyshine's picture

"Stocks again forget that they have to FALL before QE can rescue them. DOH!"

I used to believe that but now there may be another dynamic.  Until yesterday (very convenient of me) I was short the euro via EUO calls.  EUO ETF went from 16.80 to 18.05 in 4 days, representing a big fall of the euro.  US maket should have taken a bigger beating at the weakening of the euro.

If Fed thinks Euro is going to fall due to contagion from PIIGS, and/or if the Fed wants to goose the stock market to new highs, then they can do QE3 at any time. No need to use falling market to justify it, the jobs numbers and growth numbers alone will sell it to the American people, while behind the scenes keeping the dollar relatively weak to the weakening euro being another reason.  Weak dollar to euro means greater profits from overseas operations.

Final speculation: If dollar is down 40% since 2007 against euro, market needs to be 40% higher than its 2007 benchmark. If it feels toppy here, then QE3 is there to goose it.

I started shorting S&P yesterday and doubled down today, so my personal wants are to see the correction long speculated here.  But maybe it ain't necessary.

fxpert's picture

Okay so what do we do now, buy dollar? Apparently tightening is what GS actually expects. Bernank just gave away billions for corporations to beef up their balance sheets, expecting that this will result in more hiring. Wall St gave a finger to Bernank, paid out the bonuses and cut labor force. Even Bernank can't be that stupid right? Can someone please arrange a meeting between this idiot and German finance ministers? Or has a decision already been made to destroy the dollar and become Japan 2.0?  

fxpert's picture

[BERNANKE ON THE PATH OF FISCAL POLICY] Bernanke has said both that the economy still needs a good bit of support, and that there is already a "good deal of fiscal contraction" due to the decline in federal stimulus spending and fiscal retrenchment among the states. His view, as it has been for some time, is that the way to finesse the issue is to put fiscal restraint in place for the medium term, while avoiding large cuts to the deficit now. Asked if additional revenue is needed, Bernanke declined to answer, but did say that broadening the tax base is a good idea.

swissinv's picture

and we entering into the same drama again - the market is now already expecting QE3 and nobody can afford to disappoint the markets... 

NotApplicable's picture

The only tightening out of the Fed is Bernanke's asshole around the buttons on the hot seat.

Sokhmate's picture

My opinion is that probability of the possibility is more possible than the possibility of probable impossibility. If it was more probable than impossible, then the improbability would be more impossible. Possibly, though, it is more probable.