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Calling the financial tightening caused by rising long-term rates "unwelcome," Bernanke - in Day...

Calling the financial tightening caused by rising long-term rates "unwelcome," Bernanke - in Day 2 of Humphrey Hawkins testimony - hints the purpose of his taper talk in June was to wring out some excesses from the markets. "It's probably a good thing to have happen," he says, adding it may now be easier to get hawkish leaners to go along with continued $85B/month in QE. "We've not changed policy. We are not talking about tightening monetary policy."
Comments (18)
  • mobyss
    , contributor
    Comments (2042) | Send Message
     
    Really? So the markets at all-time highs, higher than they were before the "taper talk" means excesses were wrung out?
    18 Jul 2013, 03:51 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    "Excesses" (read leverage and hot money flows) have not been "wrung out." Perhaps Bernanke doesn't study markets (at all) and just reads the teleprompter.

     

    The real story is that the move in rates took the Fed by surprise.
    18 Jul 2013, 04:13 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2061) | Send Message
     
    No worry; no worry at all. The wonder boy and the professor are still in charge, and in full and firm control.

     

    That is until 'Crucifying Tim': comes...
    18 Jul 2013, 04:39 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    It is very simple. The hawks now know what happens to the markets when there is taper talk. So they will now behave and doves will rule the day.
    18 Jul 2013, 04:54 PM Reply Like
  • mobyss
    , contributor
    Comments (2042) | Send Message
     
    ...and QE will never, ever end.
    18 Jul 2013, 05:29 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    I love it.
    18 Jul 2013, 05:32 PM Reply Like
  • Lakeaffect
    , contributor
    Comments (1047) | Send Message
     
    this man is going to trigger the next debacle with his self serving mouth . He is quickly losing his credibility.
    18 Jul 2013, 05:30 PM Reply Like
  • EK1949
    , contributor
    Comments (1580) | Send Message
     
    "He is quickly losing his credibility."

     

    Whether Bernanke intended to or not, he educated market participants about the meaning of rate increases, so we got a little taste of what the Fed critics want eveyone to experience if they get their way. Just a little taste of the poison, enough to show why Bernanke thinks rates need to stay low and the purchases continue until after the economy is strong, not before it gets there.

     

    Once we reach the targets the Fed has set, the theory goes, what would have been poison won't be any more. So it pays to continue the program until conditions change, not according to a time line. I would say the point is made.
    18 Jul 2013, 06:02 PM Reply Like
  • minecanary
    , contributor
    Comments (481) | Send Message
     
    No, the point is if his medicine hasn't worked over the last 5 years, it isn't going to. The banks threw a hissy fit because they weren't going to get their free $85 bill a month, and now Bennie thinks he has justification to keep it flowing
    18 Jul 2013, 08:50 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    It hasn't worked?
    18 Jul 2013, 09:09 PM Reply Like
  • EK1949
    , contributor
    Comments (1580) | Send Message
     
    "No, the point is if his medicine hasn't worked over the last 5 years, it isn't going to."

     

    It is working to the extent that aggressive monetary policy can work with no help on the fiscal side. This is a terrible defeat for market fundamentalism which has called it wrong on inflation, the value of low interest rates and the mythical "expansionary austerity".

     

    We now can see more clearly than ever that if the fundamentalists had got their way on both monetary and fiscal policy we'd be in a full blown depression, pure "natural" markets doing their level worst. And the funny part is that even a little taste of it and the fundies are crying the sky is falling! If you really wanted to see what hell is like you'd have to have fundamentalists in charge of monetary policy and not just fiscal policy.
    18 Jul 2013, 10:01 PM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1077) | Send Message
     
    The Fed is essentially demonstrating who holds the whip.
    18 Jul 2013, 05:52 PM Reply Like
  • captiankirkoptions
    , contributor
    Comments (201) | Send Message
     
    What a bogus and confusing statement! They fear they can not control rates if they go up as they should in a normal environment. A legitimate fear because the only ammo they have is words. More statements like this and the Fed will lose credibility. Markets are very high and way overbought there was absolutely no excess wrung out.
    18 Jul 2013, 06:20 PM Reply Like
  • wmateri
    , contributor
    Comments (536) | Send Message
     
    So Bernanke's saying he caused the loss of hundreds of billions of dollars worth of market value simply to convince some FOMC members that they should support further QE? The hubris of this man knows no bounds!
    18 Jul 2013, 07:53 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    It was a trial balloon.
    18 Jul 2013, 08:29 PM Reply Like
  • captiankirkoptions
    , contributor
    Comments (201) | Send Message
     
    This is actually kind of scary - the most powerful person in the world making statements that are completely disconnected from reality.
    18 Jul 2013, 08:04 PM Reply Like
  • EK1949
    , contributor
    Comments (1580) | Send Message
     
    "So Bernanke's saying he caused the loss of hundreds of billions of dollars worth of market value simply to convince some FOMC members that they should support further QE?"

     

    Bernanke demonstrated, intentionally or not it matters very little, that his critics are advocating disastrous policies. There's never been much doubt about that except from the market cult, which is in such deep disgrace that if we ever hear from them again it will be too soon. Nevertheless these people are too befuddled by their beliefs to be able to see how wrong they've been, so Bernanke helped them figure it out. It won't work IMO, because these are not reality based people.
    18 Jul 2013, 10:09 PM Reply Like
  • Asbytec
    , contributor
    Comments (6050) | Send Message
     
    ""We've not changed policy. We are not talking about tightening monetary policy."

     

    This is what the Fed views as accommodation, the level of reserves held as a result of it's purchases. That's accommodation, that's the low funds rate accompanied by forward guidance of that funds rate.

     

    He stresses the reinvestment of maturing securities will keep pressure on longer terms rates when the taper commences and ends. In other words, they are not tightening with the taper, they are withdrawing stimulus as long as data is "broadly consistent" with expectations. Afterward, they will rely on the funds rate and forward guidance until unemployment hits or exceeds 6.5%and inflation is well behaved.

     

    That's correct, they have not changed policy. Folks understanding of it has changed.

     

    He is well aware, as is the committee and the rest of us, of the unintended consequences of throwing spaghetti at the wall. There will be some tightening of global dollar liquidity, already has been. Such a shock was certainly "unwelcome," but "It's probably a good thing to have happen." "...adding it may now be easier to get hawkish leaners to go along with continued $85B/month in QE," some wanted an immediate end to purchases.

     

    If you read his statement to congress, it is clear data is broadly inline with expectations and they consider it appropriate to begin tapering while maintaining a highly accommodating policy stance.

     

    Read it for yourself. After the unwelcome volatility, I'd argue the prepared statement for congress is the most clearly defined statement of policy. Short rates will stay low for a long time, long rates will be influenced by reinvesting maturing securities.

     

    http://1.usa.gov/15p8y4K

     

    Too many people are confusing accommodation with long rates and hoping asset purchases will never end. They read such things into what Bernanke says.

     

    "If the incoming data were to be broadly consistent with these projections, we anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year. And if the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, "

     

    "In addition, even after purchases end, the Federal Reserve will be holding its stock of Treasury and agency securities off the market and reinvesting the proceeds from maturing securities, which will continue to put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

     

    "We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low--our second tool--to help maintain a high degree of monetary accommodation for an extended period after asset purchases end..."
    19 Jul 2013, 04:11 AM Reply Like
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