Chairman Bernanke’s testimony and Q&A were quite vanilla today. No gaffes. No taper talk. This is a welcome outcome, given that the last three times he’s talked, he’s rattled markets.
If you didn’t get a chance to tune in, below are four takeaways from his remarks:
1. While there are bright spots, like housing, the economy still has a long way to go.
• “The economic recovery has continued at a moderate pace in recent quarters despite the strong headwinds created by federal fiscal policy.”
• “The economy remains vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated.”
2. The Federal Reserve will continue its “easy money” policies for the foreseeable future.
• “With unemployment still high and declining only gradually, and with inflation running below the Committee’s longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future.”
3. There is no set schedule to exit the Fed’s easy money policies (taper QE). It totally depends on the economy.
• “I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course.”
4. Increases in the federal funds rate, when they occur, will be gradual.
• “So long as the economy remains short of maximum employment, inflation remains near our longer-run objective, and inflation expectations remain well anchored, increases in the target for the federal funds rate, once they begin, are likely to be gradual.”
Scholars’ reactions and other AEI resources on Bernanke, the Fed, and QE are here. Below are scholars’ reactions to Bernanke’s prepared testimony from this morning:
• “The Fed is acting as a giant S&L and a credit allocator: pushing credit at the favored sectors of the government and the government’s housing banks (i.e. Fannie and Freddie). Once you get the favored sectors used to this, how do you ever get off?” Alex Pollock, former president & CEO, Federal Home Loan Bank of Chicago
• “Chairman Bernanke’s prepared testimony broke no new ground. The Fed’s next move continues to be entirely data-dependent. If the economy evolves as the Fed has forecast, look for the tapering of QE purchases to begin in September.” Steve Oliner, former senior Fed official.
• “Chairman Bernanke’s dovish written testimony for the Humphrey-Hawkins hearings on the economy and Fed policy aims to make three points: tapering (less bond purchases/QE by the Fed) is not tightening; when tapering occurs depends on the economy; and zero interest rate policy, ZIRP, will continue for an extended period, probably until late 2015.” John Makin, Wall Street chief economist for 20+ years.
• “As expected, Bernanke continues to try to repair the market damage that he did earlier in the month by providing specific dates for an exit from QE3. One must welcome his now emphasizing the more appropriate policy line that the exit from QE3 will be strictly conditions based.” Desmond Lachman, former managing director, Salomon Smith Barney.
Check out @AEIecon for real-time scholar reactions to Bernanke’s testimony before the House Financial Services Committee beginning at 10 AM. On Thursday, he’ll testify before the Senate Banking Committee.
Check out AEI’s work on the Federal Reserve, QE, and Bernanke here.