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Goldman's Take On The FOMC Press Conference

Tyler Durden's picture


While we still await Jan Hatzius to lower his full year outlook any second now, to keep in line with Bernanke's drastic growth outlook reduction from yesterday's press conference, here is Goldman's Sven Stehn sharing his interpretation of the Fed's "color" from yesterday. The conclusion: "Taken together, Bernanke’s remarks were consistent with our forecast for no rate hikes for a long time to come." And we would go further: just as in 2010, which 2011 has so far been an identical replica of, the second there is a 15% drop in the Russell 2000 (which hit a new all time high yesterday) following the end of the liquidity pump, "economic conditions" will deteriorate, necessitating another loosening episode. And it will come - sooner or later.

Note summary:

  • We believe Chairman Bernanke would have good reason to be pleased with his first press conference. We see three main takeaways from today’s events. First, the Committee downgraded its growth outlook modestly. Although “very weak” construction activity and high gasoline prices played a role, Bernanke indicated that most of this downgrade was due to “transitory” weakness in the first quarter.
  • Second, the Committee pushed up its projections for headline and core PCE inflation. However, Bernanke suggested that higher commodity prices “account for pretty much all” of the increase in inflation forecasts over the short term. Bernanke reiterated that inflation expectations have so far remained stable but also reminded market participants that he sees “no substitute for action” should inflation expectations rise notably going forward.
  • Finally, the Committee decided that QE2 will be concluded on schedule at the end of June and Bernanke indicated that reinvestment of maturing securities would continue thereafter. Less clear was Bernanke's statement that “extended period suggests it would be a couple of meetings probably before action.” This was somewhat of a surprise, because we had long thought that the guidance language meant to signal no rate hikes for a somewhat longer period—three to four meetings at least.
  • Taken together, Bernanke’s remarks were consistent with our forecast for no rate hikes for a long time to come.

Full note from Goldman's Sven Jari Stehn

Today marked a watershed in Fed communication. After release of the Federal Open Market Committee (FOMC) statement at 12:30pm, Chairman Bernanke gave his first post-meeting press conference at 2:15pm in which he presented the FOMC’s economic forecasts and then took questions from journalists. We believe Bernanke would have good reason to be pleased with his first press conference.

In the remainder of this comment we summarize the main takeaways from today’s events.

1. A modest downgrade to the growth outlook, mainly due to transitory first-quarter weakness.

As expected in light of recent information, the FOMC shaved its real GDP growth numbers and described the recovery as "proceeding at a moderate pace". Specifically, the FOMC’s “central tendency” range (which excludes the three most extreme projections on each side) for 2011 real GDP growth was reduced from 3.4-3.9% in January to 3.1%-3.3% (see Exhibit below). Expectations for growth in 2012 and 2013 were cut very slightly as well. At the same time, the Committee upgraded its assessment of the labor market. In particular, projections for the average unemployment rate in 2011Q4 were cut significantly to 8.4%-8.7% from 8.8%-9.0% previously. The top end of the 2012 range was lowered slightly as well, whereas the 2013 range remained unchanged.

Chairman Bernanke then provided a lot of helpful context to understanding this outlook in his remarks during the press conference. He revealed that he expects first-quarter growth of “a little under 2%”. However, he stressed that most of the slowdown in the first quarter is “transitory,” as it was driven by “lower defense spending than anticipated”, “weaker exports” and “other factors, like weather”. Chairman Bernanke furthermore offered a couple of reasons for taking down growth in the remainder of 2011. First, he highlighted “very weak” construction activity, both residential and nonresidential. Second, he acknowledged that rising gas prices create “financial hardship” for households by subtracting from household income, thus making “economic developments less favorable.”

With regard to risks to the Committee’s growth outlook, Bernanke acknowledged that forecast uncertainty remains high. In particular, he sees downside risks to growth from developments abroad—including from the Middle East and Japan. Although Bernanke regards fiscal consolidation as a “top priority,” the budget cuts that have been made so far don't appear to have had “significant consequences for short-term economic activity.”

2. Slightly higher inflation, chiefly due to rising commodity prices.

In an acknowledgement that "inflation has picked up in recent months," the Committee pushed up its projections for headline and core PCE inflation. Expectations for 2011 headline inflation were raised to 2.1%-2.8% (versus 1.3%-1.7% previously), but headline projections for 2012 and 2013 were anticipated to be broadly the same as before. Core inflation projections were lifted by 0.3 percentage points in both 2011 and 2012, but remain below the Committee’s “mandate-consistent” level throughout the forecasting period.

Again, Chairman Bernanke provided helpful color on these numbers. First, he indicated that higher commodity prices “account for pretty much all” of the increase in inflation forecasts over the short-term. (It’s not clear, however, whether he meant that the 0.3 percentage point increase in the core inflation ranges primarily reflects commodity price pass-through, or simply the mechanical observation that the headline inflation projections have increased by far more than the core inflation projections.) Second, he stressed the importance of inflation expectations. He reiterated during the press conference that “it's fair to say that medium term expectations have not moved very much, and they still indicate confidence that the Fed will ensure that inflation in the medium term will be close to what I called the mandate-consistent level.” But he also reminded market participants that he sees “no substitute for action” should inflation expectations rise notably going forward.

3. No major changes to the policy outlook.

As widely expected, the Committee indicated that QE2 will be concluded on schedule at the end of June. Bernanke provided a number of additional insights during the press conference. First, he argued that the conclusion of QE2 at the end of June is unlikely to have significant effects for financial markets because the “stock” effect of the Fed’s security holdings is far more important than the “flow” effect of actual purchases. (Our own work supports this argument, see Sven Jari Stehn, “Stocks vs. Flows Revisited: End of QE2 Unlikely To Have Significant Effect on Bond Yields,” US Daily, April 13, 2011.) Second, he indicated that the Committee will continue to reinvest maturing securities past the end of QE in June. In particular he views ending reinvestment as “tightening” and, therefore, argued that ending reinvestment would represent an “early” step in the eventual exit process. Less clear was his response to a question on how to interpret the “extended period” language. He said that “extended period suggests it would be a couple of meetings probably before action”. This was somewhat of a surprise and would benefit from clarification, because we had long thought that the guidance language meant to signal no rate hikes for a somewhat longer period—three to four meetings at least. Finally, Bernanke was asked why the FOMC did not pursue additional asset purchases to stimulate the economy. He argued that the trade-offs were becoming less attractive, citing the higher levels of inflation and inflation expectations and suggesting it was less clear that additional purchases could stimulate job growth without raising inflation risks.

Taken together, Bernanke’s remarks were consistent with our forecast for no rate hikes for a long time to come.


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Thu, 04/28/2011 - 06:16 | 1215089 writingsonthewall
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Why don't terrorists stop wasting their time and start blowing up Blankenfiend?

Thu, 04/28/2011 - 06:22 | 1215097 Twindrives
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Thu, 04/28/2011 - 07:20 | 1215147 AN0NYM0US
AN0NYM0US's picture

CNBC Head of News

The Fed Will Make Sure Obama Wins in 2012  Published: Thursday, 28 Apr 2011 | 5:49

By: Patrick Allen
CNBC Head of News

“On the economic side, any signs of a deteriorating economic environment will see the Fed enacting QE3 (the third round of quantitative easing, or creating money) and hence indirectly reducing the probability of the economy derailing Obama,”

“What Tim Geithner actually means is that he wants to protect the purchasing power of Americans, not intervene to make the dollar rise against foreign currencies,”

Thu, 04/28/2011 - 07:23 | 1215158 Snidley Whipsnae
Snidley Whipsnae's picture

"What Tim Geithner actually means is that he wants to protect the purchasing power of Americans, not intervene to make the dollar rise against foreign currencies,”

That is pure nonsense... and one of the many reasons I no longer watch the bobble heads on the mass misinformation tube...

Thu, 04/28/2011 - 07:42 | 1215177 Comrade Blink
Comrade Blink's picture

And for the Fashion concious this season...

Brown is the new red, white and blue.

Thu, 04/28/2011 - 07:50 | 1215189 VodkaInKrakow
VodkaInKrakow's picture

I live overseas. From the highs of just over 1 year ago, I expect the dollar to decline in value by 30-50%. That is correct - 30-50%. We have already watched the dollar decline by roughly 35-40% whilst Chairman Bernanke has induced his Real Economy destroying policies to support The Fantasy Economy of Wall Street.

Indeed, during Bush's tenure - The Republican Recession began. In March 2008, while Bush was President, the dollar's value had been cut by over 50% due to bastard Republicans and their economic nonsense. I expect the Polish zloty to be worth more in one year or less, breaking the 1-to-1 barrier much like the Canadian dollar has done, previously. They typical Pole will have more purchasing power than an American - making the average Pole wealthier than the average American.

In Ukraine, the dollar is currently (roughtly) equal to 7.8 grivna (Ukrainian currency) - set by the Ukrainian national bank. I think only Belarus and Moldavia have a poorer currency. It would be interesting to see the dollar at 1/2 that value, with Americans having three times the purchasing power of a Ukrainan (almost none at all in America). Most Americans, by that time, will not be able to afford to live in America.

Thu, 04/28/2011 - 06:36 | 1215104 BlackholeDivestment
BlackholeDivestment's picture

Um, Chairsatan can't cast out Chairsatan?



Thu, 04/28/2011 - 09:34 | 1215539 Hungry For Knowledge
Hungry For Knowledge's picture

What is so funny to me is how these guys at Goldman/JPM, etc speak about THe Bernanke.  Ben's really their EMPLOYEE......yet they treat him as if he was an objective leader of a bank for which Goldman has no influence over.  What a scream.

Thu, 04/28/2011 - 06:27 | 1215101 Sathington Willougby
Sathington Willougby's picture

The only thing trasitory was Life, Liberty and Pursuit of Happiness.

Let's all welcome Grift, Poverty and Pursuit of a maximum corruption Thief State.

It took a 100 years to shit this pile and only a couple to flush it down.

Bye bye America.

Thu, 04/28/2011 - 06:36 | 1215111 johny2
johny2's picture

I can just imagine Bernanke smilling happily as he watches dollar drop presumably to rise after he kills it. It is becoming surreal, and brings all kind of things in mind, including zombies rather than insurrection 

Thu, 04/28/2011 - 06:48 | 1215121 I am Jobe
I am Jobe's picture

Goldman Sachs you Vampire Squid, Go F with yourself.

Thu, 04/28/2011 - 06:57 | 1215126 writingsonthewall
writingsonthewall's picture

I'd go to wall street and crap on the pavement outside Goldman if I didn't think that they would 'count that as a deposit of client funds' and promptly hedge it on their prop desk by going short on toilet paper.

Thu, 04/28/2011 - 07:07 | 1215137 BlackholeDivestment
Thu, 04/28/2011 - 08:23 | 1215248 writingsonthewall
writingsonthewall's picture

Funny? - I think you're just being dramatic...
Thu, 04/28/2011 - 21:49 | 1218838 BlackholeDivestment
BlackholeDivestment's picture

...only one reply possible.

Thu, 04/28/2011 - 06:54 | 1215125 Sudden Debt
Sudden Debt's picture

Russia just ordered the oil export to stop so they are only used for Russia.

Just like grain prices, we'll soon get a pop in prices so it seems.

Also China is a big buyer of Russian oil, so now they have to go to the middle east for the cut in supply.


Thu, 04/28/2011 - 07:00 | 1215128 writingsonthewall
writingsonthewall's picture

This is the start of the energy wars.

It's like the clone wars - but no Yoda and Mace Widoo - all we have his shitty Bernanke and Darth Gaddaffi.

...but just like the Star Wars episodes - those who you think are on your side soon turn out not to be...

Apparently - the Fed says this is not's all an illusion....repeat after me..."I am not inflation, I am deflation, rising prices are anti-gravitational"


Thu, 04/28/2011 - 08:07 | 1215211 PY-129-20
PY-129-20's picture

According to this Russian-German newspaper, there is a shortage of fuel in some regions in Russia already and some gas stations have closed. Even Moscow could face a shortage soon. And you're right. They stopped the export of 'oil based products' - which is almost a nonevent for this newspaper, because the crude oil will still be exported.


Thu, 04/28/2011 - 07:01 | 1215129 gkm
gkm's picture

One really should ask:  if the FOMC is now recognizing the inflation via their revised projections (something anyone with a buck and a brain has known for months), should it not be said that inflationary expectations are truly increasing (since the Fed is usually one of the last to know) and possibly becoming unhinged?

Thu, 04/28/2011 - 07:05 | 1215138 gkm
gkm's picture

I'll add that Pepsi is apparently seeing higher input costs which they are addressing with productivity gains.  Since the stalwart productivity gain is cutting back on employees, does this mean peak employment has just been seen?

Thu, 04/28/2011 - 07:21 | 1215149 Snidley Whipsnae
Snidley Whipsnae's picture

"However, Bernanke suggested that higher commodity prices “account for pretty much all” of the increase in inflation forecasts over the short term."

Of course Ben continues to deny that his printing has anything to do with 'higher commidity prices'...

Some local gas stations in central Fl are now selling gas for $4.09 9/10 for regular. Less pricey stations same gas costs $3.79 9/10. Good thing I hedged dollars, gasoline, and food with gold and silver. Suck on it Ben...

Thu, 04/28/2011 - 07:20 | 1215154 Hushups
Hushups's picture

It's nice to know that these people are willing to take time out of their busy day to let me know that everything is A-OK. My blue pill bottle was starting to rattle, about time for another refill.

Thu, 04/28/2011 - 07:27 | 1215161 Snidley Whipsnae
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Blythe's raids against PMs are becoming more feeble by the day... another started just prior to London opening... suck on it Blythe...

Thu, 04/28/2011 - 07:43 | 1215178 Cdad
Cdad's picture

Goldman thinks Ben Bernanke did well yesterday?  Are you kidding me? That was a bomb.  He could not deflect either the question about the falling US dollar nor could he handle the question about rising commodity costs.  He failed.  Those were the key questions.

Gold and silver promptly documented his failure.  

Again, the criminal syndicate Wall Street bankers show just how their house is made of spit and scotch tape, and based on volume, no one wants to move in.  All of this gets more maddening each day.

Who does Sven Stehn think he is kidding with this?


Thu, 04/28/2011 - 08:05 | 1215215 HelluvaEngineer
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Of course they do.  BB reinforced the point that the dollar is a zero, thereby goosing the beloved markets once more.  These tools celebrate every % lost in DXY because they are levered long 30:1 with free money.

Thu, 04/28/2011 - 07:44 | 1215180 averagejoe
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And so, Gold and silver will continue to rise.  Shame the average western joe hasn't got any to protect them from the up and coming chaos.  Just as well I'm not average.

Thu, 04/28/2011 - 07:46 | 1215183 gide100
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At the start of the speech 'The Bernank' said that the Fed will 'continue to reinvesting principal payments from its securities holdings'. Sucking the currency back out of the economy can only occur if the securities mature and the currency is removed from circulation. Does this mean, as Jim Rickards predicated, we will have some type of rolling QE, re-using the income from securities? (see 3 mins in).


Thu, 04/28/2011 - 07:49 | 1215187 oogs66
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Ben denying that he has anything to do with $ policy is a joke.  Just a sham.  And they expect us to swallow it?  Shameful.

Thu, 04/28/2011 - 07:57 | 1215203 ParaZite
ParaZite's picture

So, 200 dollar oil and QE#3... everybody is gonna get raped!

No one will be able to afford lube... so this is gonna hurt.

Thu, 04/28/2011 - 09:16 | 1215463 DavidC
DavidC's picture

You could use left over cooking oil - just make sure you filter it for any gritty food particles first.

Oh, hang on. No one will be able to afford to eat, so no left over cooking oil.

Hmmm, you're right.


Thu, 04/28/2011 - 08:08 | 1215219 vincentmulleman
vincentmulleman's picture

 A Central bank's main pre-occupation should be to safeguard the currency in order to keep the public's trust. When central banks enter the stage of politics (unemployment target etc), you are in trouble.

Thu, 04/28/2011 - 08:10 | 1215225 Freewheelin Franklin
Freewheelin Franklin's picture

Has anyone posted the new Keynes vs Hayek debate yet? I think it was released yesterday.

Thu, 04/28/2011 - 08:28 | 1215236 slewie the pi-rat
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i thought the demonic One might raise rates .25% in choreo-sympathy w/ BoE, but the dallas & philly reports---no way, Bennay!

goldman, here, also glazez over japan even more than batmanke.  ok,ok, G/Sachs was right about everything!  japan doesn't matter, it is "transitory" and the FACT that the chairzelbubbler has been PPT-ing all over the japanese bankstering by creeeeaming the USD for the sake (ouch) of the yen.

after the freaking place stopped shaking and the flood receded and the reactors started going off like the old Xmas tree bulbs with the kitty involved, batmanke hit the rockets on the freaking batmobile so hard, he drove the yen right thru the freaking roof!  and, he did it to preserve the Treasury market, too.  japan has lotsa T's.  his baby.  as a bankster, this guy is dante-esque!

so, they got the MSM to broadcast, in 87 languages, that the freak show was due to "yen repatriation" and now they've got the currencies, the Ts, the JGBs and the securities markets about as "healthy" as possible, under the circumstances. 

as far as i'm concerned, that's what money is for.  how the hell they did this, i'll never know, but they did.  the economies are down on one knee, suckin wind.  maybe both knees for some people and places.  but the markets---nobody touches these markets except banksters!

this doesn't mean i think that price discovery and assets-to-market creative capital destruction is unnecessary or even slightly undesireable.  but, if you are gonna let these criminals sill run the show and hold liquidation in abeyance in order to "preserve wealth" (i.e. bail out and load up the rich with ill-gotten gain), while exposing the nation to certain bankruptcy and possible chaos, what the hell---go for it!  this crony capital goobermint-in-pocket fascist plantation pigsty is gonna get hosed down, completely.  by itself, no less!  while we're watching this sovereign debt monster get ginormous, we might as well hum the ghostbuster's theme and enjoy the drama!

as rodney might say:  take care of #1 and don't get pushed into someone else's #2.

YouTube - Ghostbusters Theme Song


Thu, 04/28/2011 - 09:16 | 1215449 DavidC
DavidC's picture

"Taken together, Bernanke’s remarks were consistent with our forecast for no rate hikes for a long time to come".

I wish I was as clever as those Goldman boys...oh, wait, I could have told him that if Benny raises rates it's game over. Maybe I AM as clever as those Goldman boys! Oh, joy!


Thu, 04/28/2011 - 09:17 | 1215456 HedgeFundLIVE
HedgeFundLIVE's picture

Fed days tend to be up on average 67bps, on following day down 11bps:

Thu, 04/28/2011 - 10:11 | 1215694 Gordon_Gekko
Gordon_Gekko's picture

Here's my take on things:

Fuck Goldman and fuck the FOMC. Who gives a fuck what they are doing or saying anymore? Everything collapsed back in 2008 and only its realization among the deluded public remained. It's time to duck and take cover. Get out of the way of the sheeple who are about to run off the cliff in their maddedned frenzy as all their illusions are blown to smithereens. It's every man for himself now.

Thu, 04/28/2011 - 10:24 | 1215751 Gordon_Gekko
Gordon_Gekko's picture

Here's how 99% of world population will look like after their illusions have collapsed:


Thu, 04/28/2011 - 11:54 | 1216238 blunderdog
blunderdog's picture

Well, just thinking about it practically for a minute...

The idea of an honest gummit and an end to fascist protection of corporate wealth and so on sounds very appealing to the 99% of us in the USA who don't partake of much political power.

But seriously for a moment: can the government tell that other 1% "sorry, the bankers lost all your investments and we can't afford to make good on them"?

Everyone likes to talk about civil war coming from the common man, but in the USA I think the real threat is from the tiny minority of powerful and rabidly pissed off people.  Most folks aren't going to pick up a rifle if they have enough to eat, but if someone started offering the unemployed $100 a day to go make trouble, I'm sure it wouldn't take very long.

Note that none of this signals my agreement with the policies.  Just seems a likely interpretation of what got us here.

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