Bernanke’s main talking points are that fiscal policy remains a drag on the economy this year, growth has continued at a moderate pace, government spending declines acted as a drag, long-term inflation expectations remain stable, aggressive monetary policy has reduced headwinds, the pace of assets purchases could change based on conditions and credit quality of some loans has eased.
The one thing that the stock and bond bears will hang a hat on is that Bernanke did admit that a long period of low interest rates does come with risks. That being said, our own interpretation is that Bernanke is telling the bears to relax, as you will see here.
Here is the takeaway quote that should ease concerns that the Federal Reserve will drastically cut its easing and bond buying.
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. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.
Just yesterday came word from Fed presidents Bullard and Dudley that the quantitative easing measures and bond-buying efforts do not need to be tapered off yet, and Dudley even went on to further back that up this morning, telling Bloomberg TV that any real decision to begin tapering off of the bond buying is likely another three or four months out.
Shortly before the Bernanke speech, we had the S&P 500 up 4.70 at 1673.86, and the DJIA was up 40 points at 15,427. Gold was up $7 at $1,384.60 per ounce, and the 10-year Treasury yield was 1.918%. Now the S&P 500 is up more than 10 points, the DJIA is up more than 80 points and gold went up to $1,400.
See the Bernanke’s full testimony here.
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