The Federal Reserve chairman's semi-annual testimony is always a
notable event for markets and Tuesday's appearance by Mr. Bernanke
has taken on increased importance in the wake of the minutes from
the FOMC's 29-30 Jan meeting. Once again we enter the world of
semantics as we are forced to compare the views of "several"
participants suggesting varying the pace of asset purchases (QE)
versus "a number" of others advocating tapering or stopping QE even
before the job market had improved substantially.
In addition, we have "several others" who warned against
prematurely winding back monetary easing. A number discussed
maintaining loose policy longer than previously assumed. Recall
that the FOMC chose the most generous option when Operation Twist
ran its course in Dec, adding the balance sheet-neutral $45B
monthly Treasury purchases of Twist with the same amount but funded
by balance sheet expansion (money printing).
"Add this to QE3's $40bn of MBS purchases and the Fed is buying
$85bn per month, a $1 trillion annual pace - even for the Fed that
is a very significant amount. We can imagine that tapering
purchases was advocated by St. Louis Fed president Bullard, given
that he recently delivered a speech devoted to the topic, while the
familiar regional hawks will have focused on the side effects of QE
and argued for winding it up ahead of schedule." notes Global
Strategist Sean Callow at Westpac.