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Bernanke's Testimony to Congress and FOMC Minutes Preview

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Orginally posted http://www.tothetick.com/bernankes-testimony-to-congress-and-fomc-minutes-preview

THE IMPORTANCE OF BERNANKE’S TESTIMONY

Fed chairman Ben Bernanke’s testimony to Congress will be important in setting the tone for the markets (particularly the dollar, equities and US treasuries), as traders hunt for clues on when the Fed is likely to ease its rate of asset purchases.

The greenback surged last week, with the dollar index reaching a three-year high, on the back of traders’ expectations that improving US economic data will lead the Fed to begin tapering its programme of quantitative easing, possibly as early as the middle of this year.

Minutes from the FOMC’s latest policy meeting in May will follow Bernanke’s testimony. However, it is likely that Bernanke’s testimony may take the edge off this release, in terms of market impact.

FOMC POLICYMAKER UNCERTAINTY

Bernanke’s testimony is crucial, given the mixed messages from Fed officials in recent weeks. For example, Charles Plosser has suggested decelerating the rate of asset purchases, also suggesting that the Fed shortens the duration of the bonds it currently holds.

Some FOMC members, like John Williams, are in favour of tapering asset purchases by the end of this year. On the other hand, Eric Rosengren has argued that now is not the time for the Fed to taper its asset purchases.

And this week, Richard Fisher came out in favour of slowing purchases of mortgage securities, saying the housing sector no longer needs the Fed’s support.

Sebastien Galy, an analyst at Societe Generale, says “the Fed is slowly moving out of the ultra-dovish camp, as the Bernanke clan reassesses the risks for the Fed balance sheet and the economy of ultra-easy conditions for so long.”

It appears as though the Fed is eager to push the debate into the public domain. Simon Smith, an economist at FxPro says that “[the Fed] is keen not to scare markets when the [tapering] does eventually happen, hence the propensity to talk openly about it.”

WHAT CAN WE EXPECT?

What is definitely known is that the Fed is intent on tapering asset purchases. When is less clear – it is generally accepted that it could be anytime from the middle of this year, all the way out to 2015 (assuming that the tone of economic data improves – especially unemployment and inflation).

However, it is worth noting that “the current debate over tapering QE does not stem from a satisfaction with state of the labour market or concern over inflation risks but a desire to limit the perceived financial stability costs of QE,” according to Divyang Shah, a strategist at IFR Markets.

Recent US economic data has softened, but is still encouraging. Retail sales notably beat expectations, rising by 0.1% in March. Consumer confidence has improved; the University of Michigan consumer sentiment index advanced to 83.7 in May, from 76.4 in aPRIL, as the mighty US consumer shakes off the impact of fiscal sequestration.

But challenges on the supply-side of the economy remain, as shown by both the Philly Fed and Empire State manufacturing surveys, which both fell below 0; industrial production also shrank by 0.5% in April. And the employment situation is mixed, with weekly jobless claims inching higher last week, after improving over the preceding weeks.

Nevertheless, Mansoor Mohi-uddin, an FX strategist at UBS, believes that there is still positive underlying growth momentum, pointing to the Philly Fed survey’s inventories sub-index, which rose from -26.3 to 0.7. And although housing starts fell by 16.5% in April, the forward-looking measure of building permits jumped by 14.3% month-on-month.

But Mohi-uddin believes that “it is still too early to expect the Fed to [taper asset purchases] in the summer.” This line of reasoning is underscored by the benign inflation outlook in the US. Core inflation – as measured by Private Consumption Expenditure, which is the Fed’s preferred gauge of inflation – has eased to 1.1% on an annualised basis.

A recent article in the Wall Street Journal by Jon Hilsenrath, a prominent Fed watcher, suggested that FOMC members are not alarmed by the deflation risks, and are satisfied that inflation expectations are stable. Traders consider the benign outlook as supportive of continued monetary stimulus. FxPro’s Smith reasons that “it seems unlikely that the Fed will step back from its commitment to buy $85 billion of securities per month in the near-term, with the economy still mixed and inflation pressures easing.”

Whether or not Bernanke will choose to communicate his personal views on when asset purchases will be tapered remains to be seen. Some speculate that any change to the Fed’s asset purchases will only come when Bernanke holds a press conference after the policy meeting, which would give him an opportunity to fully explain the FOMC’s rationale.

These press conferences are usually held in March, June, September and December, when the Fed also updates its economic forecasts. Mohi-uddin thinks that “June seems too early, while September and December seem more likely for the Fed to start reducing its pace of easing if the US economy re-accelerates.”

But staying focused on Bernanke’s testimony on Wednesday, Kathleen Brooks, research Director at Forex.com, says that there are two key questions that traders want answers to: “How will he explain the uptick in initial jobless claims last week? How will he react to the drop in core inflation to a two-year low at 1.7% for April? His answers to these potential questions from Congress could determine the medium-term outlook for the buck.”

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Tue, 05/21/2013 - 04:22 | 3583234 cpzimmon
cpzimmon's picture

Sorry, I don't believe one fucken word of this article.

Tue, 05/21/2013 - 03:54 | 3583220 Tenshin Headache
Tenshin Headache's picture

We are likely to see continued easing at about the same pace. If not, the already vertiginous decline in the yen will become a freefall. The Fed is is not about to annihilate the US's #4 export trading partner, and may take further action to support Japan in its currency crisis.

Mon, 05/20/2013 - 23:27 | 3582947 Rathmullan
Rathmullan's picture

"Kathleen Brooks, research Director at Forex.com, says that there are two key questions that traders want answers to: “How will he explain the uptick in initial jobless claims last week? How will he react to the drop in core inflation to a two-year low at 1.7% for April? His answers to these potential questions from Congress could determine the medium-term outlook for the buck.”

So we now know that "medium term" in the eyes of "traders" is a period in the range of 1 week to 1 month----makes sense. I'm sure congress is dying to know.

 

Mon, 05/20/2013 - 19:30 | 3582240 ebworthen
ebworthen's picture

The Bernanke sophistic equivocation blubbering as usual:

"The economy is recovering but remains weak in sectors.  Employment is improving but needs to improve further.  Inflation remains constrained.  We will maintain QE until the housing market stabilizes and employment improves.  We may taper FED measures in the future, and will remain ready to stimulate if tapering causes contraction, until such time as we need to taper, but not before improvement in the economy is stable.

'Escape velocity' could take from 6-months to 20 years.

We remain vigilant."

*cough*

Mon, 05/20/2013 - 17:51 | 3581860 q99x2
q99x2's picture

He should have said that he was going to abolish himself.

Mon, 05/20/2013 - 17:02 | 3581735 robnume
robnume's picture

Hilsenrath is a "prominent Fed watcher"? He's a fucking shill for "The Fed"; everyone knows that! Everyone, that is, except for this stupid fuck. WTF made ZH post this dis-information? Yeah, there's a "free market", - where? - the one where you can get something for nothing.

Mon, 05/20/2013 - 15:57 | 3581512 PiltdownMan
PiltdownMan's picture

Gov't controls markets. And Dems/IRS control your healthcare.

Mon, 05/20/2013 - 13:11 | 3580828 sbenard
sbenard's picture

On what day and time is the testimony of the Bubble-Blower Chair?

Mon, 05/20/2013 - 14:35 | 3581159 sbenard
sbenard's picture

NO one knows when Bubbles testifies before Congress?

Mon, 05/20/2013 - 23:46 | 3582993 Barry McBear
Barry McBear's picture

His speech will be released this wednesday at 10 am eastern for us, tuesday at 2pm for jpm, gs and the kleptocrats.

Mon, 05/20/2013 - 12:56 | 3580768 MFLTucson
MFLTucson's picture

Bernanke’s testimony is crucial, given the mixed messages from Fed officials in recent weeks.

His testimony is irrelevant, what he does is the opposite of what he says and that is what matters.

Mon, 05/20/2013 - 14:07 | 3581066 dontgoforit
dontgoforit's picture

He's a perfect fit for the obumma administration.  As I recall it, obimmer has done the exact opposite of what he said more times than not; and, he seems to have an ability to habitually lie about nearly everything - or didn't know about anything.  God help us.  How is it that feeble people like this know-nothing can end up as pres of the US? 

Tue, 05/21/2013 - 00:35 | 3583062 nope-1004
nope-1004's picture

Because he was selling an illusion, and everyone bought it.  During difficult economic times, or times of a national security threat, people look for that savior-type individual to talk them up, promise the world, and make them feel good about themselves.  And that's exactly what happened.

Obama is a liar, yes, but more important he is a complete failure and a loser.  He sold the US out on "hope and change".  Did either happen?  I'd say hope is gone.  Change?  Ya.... but wasn't it supposed to be for the better?

Obama is a real failure.  He is at the pinnacle of loser-dom.  He is, and always will be, an inept liar, full of hot air and bullshit.

He became pres of the US only because he sweet-talked his way in.  He has no game, other than talking up some bullshit plan that NEVER materializes.

On the plus side, and because he can talk, he'd be great to go clubin' with and wheel women......

 

Tue, 05/21/2013 - 16:09 | 3585248 Chuck Walla
Chuck Walla's picture

Don't forget Obammy's sales pitch was backed by welfare checks as an appropriate expression of his gratitude for all the sweet vacations he(not they) would take on their backs.  That old Chicago "Pay to Play" is a very apt description.

FORWARD SOVIET! FORWARD SANDALS & BEACHES!

Mon, 05/20/2013 - 12:08 | 3580526 Conax
Conax's picture

“[the Fed] is keen not to scare markets when the [tapering] does eventually happen, hence the propensity to talk openly about it.”

Bullsh!t.

They talk about it to stimulate drops in PM prices, to prop up the dollar, and to imply they have an end game that will work.

If they don't buy the bonds, who will?  They can't stop. They can talk about slowing, and that's it.

A pox on their houses.

Mon, 05/20/2013 - 16:50 | 3581683 Winston Smith 2009
Winston Smith 2009's picture

"A pox on their houses"

They have the special, government approved and installed "Pox Shield (tm)" on their mansions.

Mon, 05/20/2013 - 12:04 | 3580508 Orwell was right
Orwell was right's picture

Regurgitation of readily available info.    Are these "PivotFarm" postings just a way to drive traffic to the commercial PivotFarm website?     

How did pvifotfarm get vetted to write on ZH?

Mon, 05/20/2013 - 12:01 | 3580497 stinkhammer
stinkhammer's picture

End the FED, IRS and DHS too

Mon, 05/20/2013 - 13:12 | 3580835 sbenard
sbenard's picture

Ie., RESTORE LIBERTY!

Mon, 05/20/2013 - 13:30 | 3580922 Kiss My Iceland...
Kiss My Icelandic Ass's picture

"Fed chairman Ben Bernanke’s testimony to Congress will be important in setting the tone for the markets"

 

Gimme a f***ing break. There are no markets.

Mon, 05/20/2013 - 14:34 | 3581156 sbenard
sbenard's picture

Indeed, we've had a simulacrum of real market-based prosperity for many years! Mirage markets! But definitely NOT a "free market" any more!

Mon, 05/20/2013 - 17:09 | 3581750 knukles
knukles's picture

This just in!

The Bernak's Office announced that he will not be attending Congressional Testimony as his schedule is completely filled avoiding the Jackson Hole meeting.

Do NOT follow this link or you will be banned from the site!