In a somewhat unsurprising speech, Bernanke lays out the same old data-dependent, we-might-Taper-but-only-if-things-are-great (and they're not), just-enough-for-everyone to hope for the punchbowl to never be taken away on the basis of dreaming of more dismal data to come:
- *BERNANKE SAYS PACE OF BOND PURCHASES NOT `ON A PRESET COURSE'
- *BERNANKE SAYS FED MAY TAPER QE IN 2013, HALT IT AROUND MID-2014
- *BERNANKE SAYS FOMC BELIEVES RISKS TO ECONOMY EASED SINCE FALL
- *BERNANKE SEES HIGHLY ACCOMMODATIVE POLICY IN FORESEEABLE FUTURE
While the market is skittish on this (maybe on his ongoing recognition that the bubble is right back where it was), we suspect the post-speech Q&A will be the key as he will have had over two hours to see the market's reaction and therefore walk it back if he needs to.
Pre:S&P 500 1671.75, 10Y 2.5207, EURJPY 130.99, USD 82.58, WTI 105.8, Gold 1287.33
The speech highlights: "no preset course"
I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly. On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions--which have tightened recently--were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer.
Bernanke admits the unemployment rate drop is due simply to the crash in the labor participation force:
if a substantial part of the reductions in measured unemployment were judged to reflect cyclical declines in labor force participation rather than gains in employment, the Committee would be unlikely to view a decline in unemployment to 6-1/2 percent as a sufficient reason to raise its target for the federal funds rate.
If all goes according to plan:
If the incoming data were to be broadly consistent with these projections, we anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year. And if the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear.
But things are not good:
With unemployment still high and declining only gradually, and with inflation running below the Committee’s longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future.
The accommodation tools:
We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low--our second tool--to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels. In appropriate combination, these two tools can provide the high level of policy accommodation needed to promote a stronger economic recovery with price stability.
And just in case we are wrong about everything:
Of course, economic forecasts must be revised when new information arrives and are thus necessarily provisional.
Full speech (pdf):