Post by jeffolie on May 22, 2013 11:56:22 GMT -6
slow QE could come soon, Ben May 22, 2013
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May 22, 2013
Bernanke: ‘Step down’ in QE could come soon
WASHINGTON (MarketWatch) — The U.S. central bank could slow down its asset purchase program in the next few months, Federal Reserve Chairman Ben Bernanke told Congress on Wednesday.
“In the next few meetings, we could take a step down in our pace of purchase,” Bernanke said in a question-and-answer session with the Joint Economic Committee.
He noted that there has been “some improvement” in the job market, and the central bankers will focus on whether this continues, “and there is confidence that it is going to be sustained.” See MarketWatch's blow-by-blow account
Stocks jumped on Bernanke’s prepared remarks, then lost ground on his tapering comments but regained lost ground as the session continued.
Treasurys reacted swiftly to Bernanke’s tapering comments, sending yields higher than 2% for the first time since March.
The Fed next meet on June 18-19, followed by meetings on July 30-31 and September 17-18. Vote on when you think the Fed will tighten.
Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said Bernanke’s comments fit with his view that the Fed would begin to taper in September.
Some Fed officials had been calling on the Fed to start to scale back purchases at its next meeting on June 18-19.
The central bank will release the minutes of its March meeting at 2 p.m. Eastern.
Many Fed watchers think the Fed might begin to taper asset purchases in the third quarter. Others see no change in the pace of purchases this year.
Bernanke’s prepared remarks were more dovish. He said a premature move to tighten monetary policy could strangle the recovery.
“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said in testimony.
This would keep rates lower for an extended period, lead to a poor return on assets and pose a risk to financial stability, he said.
The Fed is buying longer-term Treasurys at a pace of $45 billion per month and agency mortgage-backed securities at a pace of $40 billion per month.
Bernanke sought to stress that a tapering would not mean the start of an automatic exit from the Fed’s easy policy stance, and that the rate of purchases could increase if warranted.
The Fed chairman also said the central bank may not sell the agency mortgage-backed securities in its balance sheet and allow them to roll off passively.
Lou Crandall, chief economist at Wrightson ICAP, said before Bernanke’s testimony that the central bank was trying to prevent the market from pricing in the “complete elimination of QE” at the first sign of tapering.
Bernanke’s timing fit with remarks from another top Fed official. Earlier Wednesday. New York Fed President William Dudley said it would take three or four months before the central bank had a handle on the economic outlook given the on-going “tug of war” between growth and the drag from fiscal policy.
Bernanke said that fiscal policy is still having a substantial drag on the economy this year and Fed policy doesn’t have the power to fully offset it.
Dissipating headwinds
Bernanke had good and bad things to say about the economy.
On the one hand, he said that the job market “remains weak overall” despite some improvement recently.
On the other, the Fed chairman said some of the headwinds holding back growth have begun to dissipate recently.
Bernanke did not seem overly concerned about low inflation.
The Fed’s favorite inflation gauge, the personal consumption expenditure index, rose only 1% over the 12 months ending in March. This is well below the Fed’s 2% target.
Bernanke said that measures of longer-term inflation expectations have remained stable and that the central bankers expect longer-term inflation to run at or below the 2% target rate.
To assist the economy, Bernanke urged lawmakers to replace some of the near-term fiscal restraint now in law with a longer-term plan that would reduce the deficit more gradually in the near term but more substantially in the longer run.
The Fed chairman noted that ultra-easy policy has costs and risks. He noted the Fed is watching closely for signs of financial instability.
But in the current economic environment, “monetary policy is providing significant benefits,” he said.
www.marketwatch.com/story/bernanke-premature-tightening-could-end-growth-2013-05-22
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May 22, 2013
Bernanke: ‘Step down’ in QE could come soon
WASHINGTON (MarketWatch) — The U.S. central bank could slow down its asset purchase program in the next few months, Federal Reserve Chairman Ben Bernanke told Congress on Wednesday.
“In the next few meetings, we could take a step down in our pace of purchase,” Bernanke said in a question-and-answer session with the Joint Economic Committee.
He noted that there has been “some improvement” in the job market, and the central bankers will focus on whether this continues, “and there is confidence that it is going to be sustained.” See MarketWatch's blow-by-blow account
Stocks jumped on Bernanke’s prepared remarks, then lost ground on his tapering comments but regained lost ground as the session continued.
Treasurys reacted swiftly to Bernanke’s tapering comments, sending yields higher than 2% for the first time since March.
The Fed next meet on June 18-19, followed by meetings on July 30-31 and September 17-18. Vote on when you think the Fed will tighten.
Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said Bernanke’s comments fit with his view that the Fed would begin to taper in September.
Some Fed officials had been calling on the Fed to start to scale back purchases at its next meeting on June 18-19.
The central bank will release the minutes of its March meeting at 2 p.m. Eastern.
Many Fed watchers think the Fed might begin to taper asset purchases in the third quarter. Others see no change in the pace of purchases this year.
Bernanke’s prepared remarks were more dovish. He said a premature move to tighten monetary policy could strangle the recovery.
“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said in testimony.
This would keep rates lower for an extended period, lead to a poor return on assets and pose a risk to financial stability, he said.
The Fed is buying longer-term Treasurys at a pace of $45 billion per month and agency mortgage-backed securities at a pace of $40 billion per month.
Bernanke sought to stress that a tapering would not mean the start of an automatic exit from the Fed’s easy policy stance, and that the rate of purchases could increase if warranted.
The Fed chairman also said the central bank may not sell the agency mortgage-backed securities in its balance sheet and allow them to roll off passively.
Lou Crandall, chief economist at Wrightson ICAP, said before Bernanke’s testimony that the central bank was trying to prevent the market from pricing in the “complete elimination of QE” at the first sign of tapering.
Bernanke’s timing fit with remarks from another top Fed official. Earlier Wednesday. New York Fed President William Dudley said it would take three or four months before the central bank had a handle on the economic outlook given the on-going “tug of war” between growth and the drag from fiscal policy.
Bernanke said that fiscal policy is still having a substantial drag on the economy this year and Fed policy doesn’t have the power to fully offset it.
Dissipating headwinds
Bernanke had good and bad things to say about the economy.
On the one hand, he said that the job market “remains weak overall” despite some improvement recently.
On the other, the Fed chairman said some of the headwinds holding back growth have begun to dissipate recently.
Bernanke did not seem overly concerned about low inflation.
The Fed’s favorite inflation gauge, the personal consumption expenditure index, rose only 1% over the 12 months ending in March. This is well below the Fed’s 2% target.
Bernanke said that measures of longer-term inflation expectations have remained stable and that the central bankers expect longer-term inflation to run at or below the 2% target rate.
To assist the economy, Bernanke urged lawmakers to replace some of the near-term fiscal restraint now in law with a longer-term plan that would reduce the deficit more gradually in the near term but more substantially in the longer run.
The Fed chairman noted that ultra-easy policy has costs and risks. He noted the Fed is watching closely for signs of financial instability.
But in the current economic environment, “monetary policy is providing significant benefits,” he said.
www.marketwatch.com/story/bernanke-premature-tightening-could-end-growth-2013-05-22