The Final Round In The Fed's Arsenal
Today's speech by Bernanke should not have come as much of a surprise to any market realist; aside from his somewhat more truthy than we expected admission that growth potential may have become impacted long-term by the crisis. Most people believe they know the Fed's plan. Five of the Six 'Deflation-Fighting' steps have been extensively discussed in the media, and Bernanke has been very vocal about their use (and even expanded their scope repeatedly). The only one he has been shy to mention is the purchase of foreign bonds. A mere nine months ago we first exposed the fact that the Fed did indeed hold foreign bonds (courtesy of Dudley's slip perhaps) and while he suggests there is a 'high bar' for additional purchases; in our extraordinary world of experimental monetary policy, this absolutely means a non-zero chance (or perhaps the Fed's 'other assets' is Europe's little piggy-bank? and its already started to 'diversify').
Bernanke (exactly 10 years ago) in a speech outlined a 6 point plan for preventing deflation...
He has completed all of them.
We can only wonder what the Fed's 'Other Assets' consists of - given the shyness of discussion of this point relative to the trumpeting of the other steps...
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