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.