QE3 Or No QE3: The CIA's Take

Well not quite the CIA, but close enough. The good ex-spies of BIA Behavioral Intelligence Analysis have conducted another behavioral assay, this time targeting global overlord Ben Bernanke and specifically his Wednesday press conference, focusing not on the script but what was left unsaid between the lines. For those unfamiliar, "The BIA team represents a diverse mix of highly accomplished
professionals from the national intelligence and business communities,
who came together to create and deliver BIA’s ground-breaking solutions
for our clients. Our intelligence experts average more than 20 years
experience in interviewing, evaluating and collecting information across
the globe and have been working with premier firms since 2001 to
improve investing and business outcomes through application of our
unique methodologies." In lieu of a lie detector being hooked up to the Chairman (Simpsons scene comes to mind), this may be one of the better analyses in interpreting what was said... and unsaid.

From BIA Behavior Intelligence:

BIA Behavioral Intelligence: Ben Bernanke at Federal Open Market Committee

Press Briefing

June 22, 2011

Assessment Summary

BIA’s behavioral analysis of Mr. Bernanke’s comments during the June 22, 2011 Federal Open Market Committee press briefing produces a higher level of concern than the briefing in April. Questions covered a broad range of topics, many of which elicited responses that signal behavioral concern. Most of Mr. Bernanke’s concerns likely seem obvious, even to the untrained eye. He acknowledges a great deal of uncertainty about why the rate of growth in the economy has slowed, he qualifies that the recovery “appears” to be proceeding at a moderate pace and consistently resorts to statements to minimize public concerns about the severity and duration of the situation -- belying his own level of confidence in the Committee’s ability to manage through the near-term. Further, his clear effort to limit expectations for improvements in unemployment, along with his persistent efforts to focus attention on the longer term, are consistent with his tacit acknowledgement that the FOMC isn’t quite sure what to do at the moment (“a little bit of time to see what is going to happen would be useful to make policy decisions”).

Even so, TBA Indicators observed in Mr. Bernanke’s comments about inflation reveal more significant concerns than he is admitting. Mr. Bernanke uses highly qualified language and avoids offering specifics, suggesting that he may believe the Committee’s estimates for future inflation rates are overly optimistic. Below are our observations.

Mr. Bernanke likely anticipates inflation to persist at current levels, and perhaps go higher, in the near-term.

In his press briefing in April, Mr. Bernanke announced that the Committee judged that an inflation rate of 1.7 to 2.0 percent is consistent with their dual mandate. In explaining the Committee’s position, he pointed out that in most central banks around the world; the aim is to set inflation “usually at about 2 percent.” This reflected an effort to demonstrate that the central tendency projection of 1.7 to 2.0 is reasonable, but also suggested that Mr. Bernanke was willing to allow U.S. inflation to push the upper limits of the range.

Sure enough, in this press briefing, Mr. Bernanke announces the mandate consistent inflation rate is “2% or a bit less,” demonstrating that the Committee has conceded that the high end of the previous range is an acceptable level. Mr. Bernanke goes on to acknowledge that the central tendency of participants’ inflation projections for this year is 2.3% to 2.5%, but that for 2012 and 2013, the central tendency is 1.5 to 2.0%. However, in his attempt to be reassuring by stating that this trajectory is “broadly similar” to the April projections, he inadvertently reveals that the underlying thinking about the future rate of inflation has changed more significantly than he implies. Furthermore, even though he states that the inflation rate is expected to subside to a level at “2% or a bit less,” he qualifies that this is the level that “most” participants judge to be the “most” consistent with the dual mandate, suggesting that opinions across FOMC committee members vary significantly.

In this context, it is notable that when asked specifically where his projections fall compared to that of the other participants’, Mr. Bernanke does not fully answer. Instead he qualifies that his projections are “pretty” consistent with “most” of his colleagues and attempts to convince listeners that he is “certainly not taking an outsized, extreme view in anyway.” This effort to downplay the degree to which his projections differ from his colleagues again suggests that his views differ significantly from at least some of them. And, while he is willing to qualify that he does believe the slowdown is “at least partly temporary,” his failure to take the opportunity to offer thoughts on a more positive outlook suggests that his views are less optimistic than those of the other participants. This raises the possibility that Mr. Bernanke believes that the inflation situation could end up worse than the estimates provided.

It is also behaviorally significant that when asked if the Committee’s current thinking suggests that the medium term tradeoff between inflation and growth has gotten worse and if the unexpected rise in inflation has changed his understanding of the output gap, Mr. Bernanke again does not answer specifically. Instead, he says, “that’s a possibility,” but emphasizes that “every member of the Committee” sees the long run unemployment rate at “somewhere around” 5.5% “basically.” He then merely surmises that this “would suggest” that the Committee still believes that the output gap is quite large. He further attempts to assure listeners that inflation will improve by stating that, given there is still a large output gap, inflation expectations remain anchored and that some of the factors affecting inflation are temporary. He concludes that “it’s reasonable” to think that core inflation will fall back “towards” mandate consistent levels. These statements fall short of a confirmation that he believes that the output gap will be as beneficial in restraining inflation as he portrays or that core inflation will actually come down to “2% or a little bit less.”

h/t Nick

Comments

[buzzsaw99]

i support enhanced interrogation techniques for members of the central bank and cia.

[GoinFawr]

Here's a new take on 'waterboarding' Kalle Lasn's crew came up with that might be a highly effective interrogation technique for both, considering the crimes they like to perp. 'Paperboarding'... oh shit nm, I forgot, this has been tried already with bailouts and the double entendre'd Patriot 'Act'.

[buzzsaw99]

the bernank in particular is in dire need of some quality time at a chinese re-education camp.

[GoinFawr]

that certainly is one way of putting it.

[AldoHux_IV]

Just goes to show his lack of understanding economics-- the output gap was all on leverage that no longer exists and thus his flawed reasoning of why it should anchor inflation is even more severly idiotic as output gap doesn't necessarily anchor inflation when you've funded TBTF institutions in their efforts to serve only their best interests (which is game prices).

Whether it's the BIA or anyone who is sane and can understand basic economics, and doesn't believe the lies of the centrally planning regime it's not too difficult to see their efforts at hiding the truth that their inherenet flawed policies are damaging and really a cover for the underlying wealth transfer and economic genocide are waning.

[PulauHantu29]

The Fed dumped lots of cheap oil into China's lap....now the Chinese are waiting for lots of cheap gold to come their way. Who knows, maybe India will buy another 40 tons if Barry forces the price lower.

[ivana]

think CIA will get him a wig for better PR performance