Thursday, June 7, 2012
MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES AMERICA, NEW YORK
“Bernanke didn’t reveal anything new in his prepared remarks. He was general and vague about what the Fed might do with monetary policy. He reiterated the Fed was willing to do more, if needed, but offered no clues as to whether additional support was needed at this time.
“Bernanke noted downside risks to the economy, but did not indicate whether the situation had deteriorated enough to warrant further action.”
LINDSEY PIEGZA, ECONOMIST, FTN FINANCIAL, NEW YORK
“The one thing we continue to hear is fiscal policy. It seems like the Fed is handing off the baton to the federal government in referring to the fiscal cliff which these tax cuts will expire at the end of the year. The Fed continues to hammer on the idea that we have done all we can and it’s up to the politicians to do their part and not undo what we have done.”
“The labor market faltered in March and April and further deteriorated in May. There doesn’t seem to be any momentum in the labor market. Right now with inflation above the 2 percent mark, the Fed is probably going to wait and see before it acts.”
“Their policy statement at their June meeting will likely be stronger in stating they will be ready to act if things worsen. I think there is a strong chance they will extend Operation Twist. We expect another round of quantitative easing is on the table.”
TODD SCHOENBERGER, MANAGING PRINCIPAL AT THE BLACKBAY GROUP IN NEW YORK
“Here’s the thing: he doesn’t have a lot of options at this point. What can he say? He’s there for accommodation if needed, but the data isn’t bad enough to justify anything further at this point, and that includes the jobs number on Friday. I’m expecting more of the same.”
FABIAN ELIASSON, VICE PRESIDENT OF CURRENCY SALES, MIZUHO CORPORATE BANK, NEW YORK
“I don’t think he is definitely saying that QE3 is on the way. He’s saying what he has said before, reassuring people that they will act if things deteriorate further. In other words, they are there if needed but they don’t feel they are needed yet.”
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK
“The headlines from Bernanke are fairly bland, with the meat of his discussion to come from the Q&A. People were maybe expecting something more explicit in his speech, but any details will come from the Q&A.”
ADAM SARHAN, CHIEF EXECUTIVE OF SARHAN CAPITAL IN NEW YORK
“He’s cautiously optimistic, but saying there are still downside risks to the economy and capital markets. We’re selling off because Bernanke didn’t reiterate the earlier comments from Janet Yellen, which really takes QE3 off the table in the immediate term.”
And here is Goldman: “No Surprises in Prepared Remarks”
BOTTOM LINE: Fed Chairman Bernanke notes “significant downside risks”, but no specifics on easing in prepared remarks.
1. Fed Chairman Bernanke’s prepared remarks to the Joint Economic Committee offered few surprises. He characterized current growth as “moderate”—consistent with Vice Chair Yellen’s remarks last night as well as the FOMC’s latest post-meeting statement—and noted “significant downside risks to the outlook”. He said the European crisis in particular “has affected the U.S. economy by acting as a drag on our exports, weighing on business and consumer confidence, and pressuring U.S. financial markets and institutions”. He also discussed downside risks stemming from possible fiscal tightening next year.
2. Unlike recent comments from Vice Chair Yellen and New York Fed President Dudley, Chairman Bernanke’s comments did not include a list of possible easing options. We do not read anything into this omission—and indeed he may mention options in the Q&A.
3. One notable portion of his remarks related to recent labor market data. Bernanke said that some of the slowing “may have been exaggerated by issues related to seasonal adjustment and the unusually warm weather this past winter”. However, he also said that another interpretation could be that the deceleration may indicate that a “catch-up” period of strong job growth from excessive layoffs during the recession may be coming to an end—a theme he first highlighted in remarks in March. If this interpretation is correct, “more-rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions”. His take on the latest labor market news therefore appears a bit more pessimistic than those from other Fed officials (e.g. views expressed by Presidents Pianalto and Bullard over the last week).