QE3 and beyond: $85 billion per month and counting

Bernanke acknowledged "there's no doubt that with interest rates near zero and with the balance sheet already large that the ability to provide additional accommodation is not unlimited," but he said "that actually is an argument for being more aggressive now." The need to accelerate growth and insulate the economy against shocks is "an argument for being somewhat more proactive now when we still have the ability to do that."

Also indicative of an easing bias is the way Bernanke continually downplayed inflation risks, confidently predicting inflation will stay "close to the Committee's 2% objective."

Whether or not he seeks to expand asset purchases, Bernanke made a point of emphasizing the Fed will maintain a very loose monetary policy longer than it has in past business cycles.

For instance, he said "a decision to end asset purchases, whenever that is reached, will not be a turn to tighter policy." While the Fed would "no longer be increasing policy accommodation," it "would remain highly supportive of growth."

"Only at some later point would the Committee begin removing accommodation through rate increases," he said.

The FOMC's revamped "forward guidance" on the path of the federal funds rate — replacing the mid-2015 calendar date with a set of economic thresholds for signaling how long it will keep the rate near zero – also bears importantly on the policy posture in the coming year and beyond.

The FOMC said it expects to keep the funds rate in a zero to 25 basis point range "at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."

Note, by the way, that the FOMC's numerical thresholds employ a contemporaneous reading on unemployment, but use an inflation forecast. Bernanke justified this approach on the grounds that the FOMC wanted to "make clear that it intends to look through purely transitory situations in inflation such as those induced by short-term variations in prices of internationally traded commodities and focus instead on the underlying inflation trend."

<< Page 3 of 4 >>
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome