Bernanke Testimony On Tap, Will He Flip Flop Again?
He’ll be in front of Congress 10AM but will release comments before at 8:30. Markets have been going parabolic last couple weeks. Good excuse for a correction. Stay tuned.
The Fed Is The Problem, Not The Solution: The Complete Walk-Through
LONDON (MarketWatch) — U.S. stock futures pointed to a lower open on Wall Street on Wednesday, ahead of Federal Reserve Chairman Ben Bernanke’s semiannual testimony and earnings from heavyweights such as Bank of America Corp. and Intel Corp.
Three Things to Watch for in Bernanke’s Testimony 1) Look for Mr. Bernanke to repeat himself. Again: 2) Does Mr. Bernanke offer any further guidance on timing? 3) Who will be the next Fed Chairman?
Markets were caught off-guard by Ben Bernanke’s most recent public pronouncements, with stocks climbing and the dollar dropping as traders latched on to his reiteration that the US Federal Reserve is in no hurry to withdraw bond-market stimulus. Now, investors are bracing to hear Mr Bernanke’s latest thinking in prepared remarks published at 1230 GMT, and his testimony to Congress starting at 1400 GMT. Heading into the big event, it’s eerily calm in markets, with the dollar edging up a little, while U.S. Treasury bonds are pretty much on hold, with the 10-year bond yielding 2.54%. Here’s a rundown of analyst and strategists views on what could happen and the potential market reaction that might ensue:
Wild Cards for the Fed’s Exit Strategy The Wall Street Journal By Jon Hilsenrath Here are four questions that Fed officials are considering as they think about when to pull back on the monetary throttle and that lawmakers might pose to Mr. Bernanke in the days ahead: In the past nine months, the economy has generated a little more than 200,000 jobs per month. But according to most economist estimates, the economy has grown at a paltry annual rate of less than 1.5% over that period. That doesn’t add up. But a number of Fed officials have doubts about whether the jobless rate is a very good indicator of the labor market’s health. In the past year the unemployment rate has fallen from 8.2% to 7.6%, an apparent sign of improvement. However, the rate has fallen in part because people are dropping out of the labor force—the share of adults holding or seeking a job—meaning they’re no longer counted as unemployed. The Fed’s favored measure of inflation—the personal consumption expenditure price index—was up 1% in May from a year earlier, well below the Fed’s 2% objective. Another measure of inflation, the Labor Department’s consumer price-index, was up 1.8% in June from a year earlier, the Labor Department said Tuesday. Fed officials say inflation is being held down by temporary factors and that it should move back toward 2% in the months ahead. However some private economists have questioned whether it is all due to temporary factors.
Bernanke Seeks to Divorce QE Tapering From Interest Rates
Thanks to QE, bubble of 2000 looks like ‘day at beach’
Bernanke: Fed will begin tapering bond purchases later this year
BERNANKE: THE PUMPING MUST GO ON
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: