Rosenberg's Takeaways From Bernanke's Speech: "Cause For Pause"
Yesterday we brought you Goldman's quite bearish takeway on Bernanke's speech (excluding the highly irrelevant Jamie Dimon monologue detour: we can't wait to hear what the JPM CEO says once it is announced that Glass-Steagall is being reinstated). Below we present Rosie's key takeaways on Bernanke's remarks.
- The Fed seems to have cut its second-half forecast of near-4% real growth to something closer to 2.5-3.0% ... growth is now seen to pick up just "somewhat" in the second half of the year from what looks like a sub-2% trend in the first half. Not exactly a ringing endorsement for pro-growth cyclically sensitive investments.
- The broad focus seems squarely on the labour market — what seems to be Bernanke's greatest worry is lack of traction. The words "jobs", "labour", "employment" and "unemployment" collectively showed up no fewer than 23 times. The comments on how aggregate hours worked are still more below the cycle high than was the case at the depths of the 1982 should be resonating on even the most ardent growth bulls and inflation-phobes.
- On fiscal policy, his comment suggests that he is concerned that the zealots will tighten the budgetary screws too hard over the near term — hence his emphasis on the need for "long-term" solutions.
- The Fed expects commodity prices to stabilize and as such for inflation to decline going forward. Interesting to see the analysis that ALL of the build-up of inflation so far has been due to gas prices, which seem to have peaked.
- Another QE round cannot be dismissed after reading this sombre assessment of the macro backdrop; at the least, the funds rate stays on hold and that should provide an anchor for yields out the steep Treasury curve.
Bernanke said the 'jobs situation remains far from normal" and as such, this recovery cannot be regarded as being "truly established." That is quite an admission — free money, a tripling of the Fed's balance sheets and 10% deficit/GDP ratios have fallen short of establishing an established recovery. Cause for pause.
Source: Gluskin Sheff
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