It's that time again when almost half a year after his first 2011 presentation to Congress and Senate in the semi-annual Humphrey-Hawkins, Bernanke will update the Hill with his latest outlook on monetary policy. And while the first such testimony earlier in the year was uneventful as it occurred at a time when the flawed belief that the US economy was growing was still prevalent, there is a peculiar sense of deja vu'ness. As JPM's Michael Feroli observes: " it may be helpful to recall last July's Humphrey-Hawkins testimony when, like now, the growth data had been seriously disappointing. Bernanke's testimony fell flat: the Chairman sounded tone-deaf, discussing plans for exit strategies, and markets rolled over, with stocks off over 1% on the day." Feroli continues: "The Chairman does seem to learn from his miscues -- there haven't been any further Maria Bartiromo incidents -- and we expect he will be more mindful of the downward momentum of the recent data." Does this mean that the Chairman may hint at a change in monetary strategy, especially if July regional Fed updates confirm the ugly NFP data? Most say no, but not Bill Gross, who as is well known, expects the first QE3 hints to be dropped in August. Perhaps Bernanke will decide to surprise the market again and pull that forward by one month? Read the full Feroli note below.
Preview of this week's Fed communications
The minutes to the June 21-22 FOMC meeting will be released Tuesday at 2pm. The following day Bernanke will deliver the semi-annual Humphrey-Hawkins monetary policy report to the House at 10am, and will deliver presumably identical testimony to the Senate on Thursday.
Some of the importance of the minutes has been undercut by the new policy of releasing the quarterly economic projections shortly after the meeting (copied below), as well as by the color that the Chairman now provides on the outlook at the press conference following two-day meetings. Nonetheless, the minutes could provide some added insight into why the Committee marked down next year's growth outlook -- even though it believes part of the recent slowdown is due to transitory factors -- and into why it has been gradually pushing higher the inflation forecast for next year. Given the tone in Bernanke's remarks following the last meeting it does not sound as though we should expect the minutes to contain much discussion of the possibility for further monetary stimulus, though that does not mean there will be zero mention of such a discussion.
Of the two Fed communications out this week, the Humphrey-Hawkins testimony will likely be the more important one. We expect Bernanke will repeat the message from the June post -FOMC press conference that the slowdown is due in part to transitory factors and that growth will likely pick up in the second half. At that press conference the Chairman noted that there was some uncertainty about the strength of this expected rebound, and given the disappointing jobs data since then we anticipate that this caution about second half growth will be emphasized in his Congressional testimony. In this regard, it may be helpful to recall last July's Humphrey-Hawkins testimony when, like now, the growth data had been seriously disappointing. Bernanke's testimony fell flat: the Chairman sounded tone-deaf, discussing plans for exit strategies, and markets rolled over, with stocks off over 1% on the day. The Chairman does seem to learn from his miscues -- there haven't been any further Maria Bartiromo incidents -- and we expect he will be more mindful of the downward momentum of the recent data. That said, Bernanke has viewed his responsibility at the Humphrey-Hawkins testimony as conveying the sense of the Committee as a whole, and at the last FOMC meeting the Committee viewed growth as likely to pick up, and also viewed the growth and inflation data together as supportive of a Fed on hold, seeing neither an exit nor further accommodation on the visible horizon, which is the message we believe Bernanke will deliver to the Congress this week. Relative to the post-FOMC press conference, the tone may be a little more cautious but the main message should be the same.