Yes, Bernanke supports QE3

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I think that the reporting of Fed Chairman Bernanke’s testimony to congress has been a little naive. While it’s certainly true that Bernanke “didn’t say he was going to do QE3”, what the reports leave out is that it was extremely unlikely that Bernanke would ever do so.

Bernanke has brought a very different approach to monetary policy making at the Fed than the approach that prevailed under Greenspan and Volker. Both Greenspan and Volker dominated the Committee, and therefore spoke as the FOMC’s leader from time to time.

Bernanke does not do this.

As far as i can tell from reports, at a typical FOMC Bernanke first lets everyone speak and then sums up and directs the policy discussion – with a view to reaching consensus. Following the meeting, he works to represent that consensus when he speaks in public.

That means that he speaks for the board when he speaks in public – and that he does not pre-judge policy prior to the FOMC meeting.

The FT’s Harding knows better than to write this piffle

Ben Bernanke offered a gloomy outlook for the US economy but the Federal Reserve chairman offered no hint of further monetary easing in testimony to Congress

I thought the Journal’s Hilsenrath was more careful – and hence more accurate.

Federal Reserve Chairman Ben Bernanke delivered a bleak new assessment of the U.S. economy to lawmakers on Tuesday but remained guarded about what, if anything, the Fed would do about it.

So what should we have been watching, if Bernanke was always going to be guarded? We should have been looking to see if he had downgraded his growth and inflation forecasts, since their 19-20 June meeting concluded.

Bernanke’s tone suggests that the staff have downgraded their growth and inflation forecasts — which suggests to me that QE3 is very close.

August is looking more likely – I’m sticking with 500bn of balance sheet expansion, spent on a mix of long bonds and MBS.


  1. It was some time ago but Glen Rudebusch from the San Francisco Fed wrote a paper on the Taylor rule. He showed it would have taken $4t yes t ( I think) more purchases to get the interest rates to where they should be.
    I do not know what they figure is now but I am betting it is a lot more than $400b.

    Bernanke looked to be the right person at the right time when the GFC occurred given his background and what he said about Japan in the 90s.

    He has been a dreadful disappointment.

    1. Yeah he’s taking a longer view with monetary policy. He can drive FOMC decisions but if there is no consensus then policy could be radically changed after he leaves. He wants policy to be robust to this.

      Having said that – like OYM – I find it frustrating. But our focus should be on the semi hawks. They are responsible for the monetary policy disappointment of last few years.

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