Articles
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What we learned from two days of Bernanke
By Greg Robb, MarketWatch
“The bottom line: QE3 timetable remains unchanged, with tapering to be announced later in 2013,” said Nathaniel Karp, chief economist for BBVA Compass, in a note to clients.
Bernanke delivered this medicine to the market with as much sugar as possible, analysts said.
“[The Fed] wrapped it in as dovish a package as they could,” said Vincent Reinhardt, chief U.S. economist at Morgan Stanley.
Stocks climbed throughout Bernanke’s testimony. Read Market Snapshot.
The Treasury market continues to heal after its recent selloff after Bernanke first laid out a timetable for tapering last month.
Part of the reason for the calm reaction to Bernanke is that if the Fed “keeps repeating the message, it sinks in,” Reinhardt said.
Bernanke suggested that tapering of the asset purchase program would take a while, Reinhart said.
In addition, the Fed chairman stressed the central bank will hold its stock of Treasurys and mortgage-related assets “off the market” and will continue to reinvest the proceeds from maturing securities for quite some time, he noted.
And Bernanke also emphasized the Fed might keep rates near zero long after the jobless rate falls below the 6.5% threshold. Rates have been at this level since 2008.
“They intend to provide policy accommodation for a very long time, but don’t see the need for incremental accommodation, so they want to see the back of QE purchases,” Reinhart said.
“Unless their plans are derailed, they will taper in September,” he said.
Bernanke stressed that the asset purchase program is “by no means on a preset course.”
Economic momentum was soft in the April-June quarter, with current forecasts close to a 1% annual growth rate, down from a 1.8% rate in the first quarter.
However, Joseph Lavorgna, chief U.S. economist at Deutsche Bank, said policymakers “will have a lot of new information on the growth trajectory ahead of the September meeting—including two employment reports, so the second quarter GDP print will not necessarily determine the fate of asset purchases.”
Already, there are signs of a pickup in July, he said. Read about Philadelphia-area manufacturing report for July.
Not all economists are on board a tapering this year.
Paul Edelstein, economist at IHS Global Insight, thinks that Bernanke had some dovish and hawkish comments that balanced out, and he is sticking with his forecast of a 60% chance the central bank waits until early 2014 to taper.
The unemployment rate is likely to stick close to its current 7.6% rate for the remainder of the year, he said. If that happens, the Fed is going to wait, Edelstein added.
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