Bernanke’s press conference

First, the Chairman’s comments along the lines of ‘addressing our long term deficit problem will lower the risk of interest rates spiking’ yet again clearly demonstrated our Fed Chairman remains lost in some kind of fixed exchange rate paradigm, and is steering things accordingly, both directly with Fed policy and indirectly with his advice to Congress, all of which continues to work to keep the output gap as high as it is.

Anyway, here’s my take on what’s happening, as per the Chairman:

Things have changed since QE2.

Job growth has increased, and unemployment is forecast to come down over time.

And inflation indicators have bottomed and turned up some, perhaps a bit too high short term, but are forecast to come back down to desired levels, given, as always assumed in Fed forecasts, appropriate monetary policy. And right now appropriate monetary policy means no more qe.

in other words, the room for further ‘monetary stimulus’ isn’t there.
it might interfere with the hoped for transient nature of recent cpi increases and not allow the cpi to come back in line with desired levels

that is, the Fed doesn’t see the risk/reward suggesting pushing any harder.

Which is exactly what China wanted to hear, but that’s another story.

Lastly, it was again stated the Fed hasn’t run out of bullets (as if it ever had any bullets), yet open options mentioned didn’t seem at all meaningful. And the Chairman maintained that because inflation is a monetary phenomena the Fed can always create inflation. Nice slogan, but talk is cheap, and so far the only inflation they’ve created is that of scaring portfolio managers out the dollar, which works until they cover their shorts in the broad sense, and that transitory inflation, as the Fed calls it, reverses.

None of this bodes well for aggregate demand.

My macro view remains the same-

because we fear becoming the next Greece, we continue to work turn ourselves into the next Japan.

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6 Responses to Bernanke’s press conference

  1. Art says:

    Richard Koo might not be fully “in paradigm,” but he’s still a dovish voice of reason. He claimed back in April to have had some productive conversations with Bernanke and Goolsbee about the negative impact of austerity when the private sector is deleveraging:

    So who knows if we end up anywhere close to the advertised $4T in spending cuts over a decade? Still agree that the outlook for risk is really shaky at the moment, just not clear on the appropriate degree of pessimism. Thoughts?


  2. Dave Begotka says:

    Warren how much power does the Exchange Stabilization Fund have over the fed in you veiw?



    as much as the fed believes it has?


  3. Scott J. Faley says:


    Of course, the corollary to your fabulous quip that “because we fear becoming the next Greece, we continue to turn ourselves into the next Japan,” is my “because we worry about living ‘beyond our means’ financially, we continue to live below our means in real terms.”



    Chaos Reply:

    @Scott J. Faley,

    I don’t think cronical trade deficits are a good thing in the logn run and create structural problems, which are REAL economic problems, not financial ones.

    Yes, obviouslly you can keep exchanging dollars for goods for a long time, but that does not mean it’s the brightest thing you could do.

    It’s fine to boost internal capacity utilization, minimize unemployment, and increase aggregate demand, but as long as that has to be at the expense of a trade deficit it’s a bad idea IMO.


    Art Reply:

    @Scott J. Faley,

    And in order to secure our grandchildren’s futures, we continue to disinvest in their parents today. The bitter taste of irony…


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