Today's TV coverage from Jackson Hole, WY started with Ben
Bernanke walking around with Stan Fischer, his thesis advisor and
close friend at MIT.
Then, we got the release of the transcript. The stock
markets (SPY, DIA, QQQ) sold off, at first as many expected, and
then finished the day higher. The price of gold surged (GLD,
What did I learn from reading through the transcript?
(1) Chairman Bernanke thinks that the Fed buying long-term
securities after bringing down the Fed's short-term interest rates
did have meaningful effects on the U.S. economy. He stated
that the 10-yr Treasury rates fell 80 to 120 basis points from
these actions, in total; that the stock market was boosted; and
that 2 million jobs were created via these actions since 2008.
(2) He added later, though, that the "Magnitude and Persistence"
of these types of effects are less certain.
(3) He also went through the use of communication by the Fed
since the crisis. Again, he affirmed that telling public
markets the Fed short-rate was going to be held down, in a
pre-commitment statement, was effective on the markets and the U.S.
(4) He stated that monetary policy can't fine tune outcomes,
which struck me that the FOMC debates take seasonal and other
volatility in economic data with a grain of salt.
(5) He let us know that the 8.3% U.S. unemployment rate is
around 2% above what members of the FOMC consider a natural, or
frictional rate of unemployment. That means to me that the
FOMC manages for unemployment rates and not inflation until the
U.S. economy gets near a 6% unemployment rate.
(5) A statement about the need for "Broader and More Balanced
Policies" was a clear nudge to the fiscal authorities and the
fiscal debate taking place in Washington this fall.
(6) He did not rule out further use of non-traditional policies.
In sum, Chairman Bernanke believes the Fed's non-traditional
monetary policy actions since the crisis appear to be working on
the U.S. economy, and the laundry list of possible negative effects
are not meaningful.
The only concern I read in the transcipt was about "Persistence
and Magnitude" of the previously taken non-traditional
I took that to mean that the FOMC will keep further
non-traditional actions in the toolkit, but not necessarily use
them anytime soon. The
statement was a push-back on QE happening at the next meeting.
Now to open the debate, what did all of you think about this
More QE in September? Are more unorthodox decisions to
come from the Fed, but later?
Let us know what you think.
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