If you wanted a clear picture of Federal Reserve strategy from the Ben Bernanke testimony to Congress this week, you were disappointed.
This week's Bernanke testimony highlighted the mixed signals Bernanke has been sending to markets - part of the reason Money Morning Chief Investment Strategist Keith Fitz-Gerald has said Bernanke is engaging in "monetary drunk driving" and is "jerking the wheel back and forth all over the road."
That's why two Bens showed up at his final Humphrey-Hawkins appearance before Congress: Accommodative Ben and Tightening Ben.
Bernanke said the $85 billion a month bond purchase plan would be slowed later this year if the U.S. economy stayed on its present course.
But he also told Congress the Fed was not backing away from its very easy monetary policy. He said "a highly accommodative monetary policy will remain appropriate for the foreseeable future."
Bernanke Testimony Sends Mixed Signals on QE3
Call it Ben Bernanke's Alan Greenspan moment.
As his predecessor as Federal Reserve chairman had often done, Bernanke sent decidedly mixed or unclear signals today (Wednesday) in testimony before Congress.
The Bernanke testimony, in prepared remarks delivered to the House Financial Services Committee, provided nothing close to a definitive answer on whether the Fed would scale back quantitative easing in September.
Bernanke's testimony came about a month after he floated a trial balloon by saying at a press conference the Fed could begin scaling back QE this year and end it altogether by mid-2014. The markets sold off immediately after Bernanke's June comments but have since recovered.
Ben Bernanke Testimony: We Have "Belts, Suspenders" to Unwind Balance Sheet
The two-day Ben Bernanke testimony before Congress continues today (Wednesday) as the U.S. Federal Reserve Chairman faces the House Financial Services Committee. Members will grill Bernanke for more information on the Fed's exit strategy from quantitative easing (QE) and its easy money policy.
While Bernanke did admit yesterday to the Senate Banking Committee that "there's no risk-free approach" to unwinding the $85 billion-a-month bond-buying program, he shed little light on how the QE measures would end.
In fact, Bernanke's vague answer to Sen. Richard Shelby, R-AL, when asked how the Fed will deleverage the balance sheet, was this: "In terms of exiting from our balance sheet... a couple of years ago we put out a plan; we have a set of tools. I think we have belts, suspenders - two pairs of suspenders. I think we have the technical means to unwind at the appropriate time; of course picking the exact moment to do, of course, is always difficult."
The buying is expected to continue until the Fed sees the unemployment rate fall to at least 6.5%, but Fed critics are concerned about the nearly $3 trillion balance sheet Bernanke has built up already.
Bernanke Testimony to Congress: The World According to the Federal Reserve
The U.S. Federal Reserve Chairman Ben Bernanke testimony to Congress ended ahead of schedule today (Thursday) in the Senate, reiterating the same tame message he communicated to the House yesterday: The Fed thinks the economy will grow modestly.
"We don't see at this point that the very severe recession has permanently affected the growth potential of the U.S. economy," Bernanke told the Senate Banking Committee in his twice annual economic testimony to Congress.
Here's a look at what Team Bernanke does see in the economy:
Bernanke Testimony to Congress
No Additional Stimulus
Bernanke said elevated unemployment and subdued inflationary pressures support low interest rates into 2014, but did not give a hint of any additional stimulus measures.
Bernanke also defended previous stimulus measures, which have drawn criticism for not being worth their hefty price tags.
"If you look back at Quantitative Easing 2, so called, in November 2010, concerns at the time were that it would be a high inflationary environment, it would hurt the dollar, it would not have much effect on growth, etcetera," said Bernanke. "But since November 2010, we have had since then the QE2 and the so-called Operation Twist, we have had about 2-1/2 million jobs created, we have seen big gains in stock prices, we have seen big improvements in credit markets, the dollar is about flat, commodity prices excluding oil are not much changed, inflation is doing well in the sense that we are looking for about a 2 percent inflation rate this year."
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