Bernanke comments Part 2

Blog first appeared in DanCollinsReport on Nov. 26, 2013

We had so much fun breaking down comments from outgoing Fed Chairman Ben Bernanke that we just couldn't limit them to 10. Here are some bonus comments along with a translation for those who don't speak Fedese.

Why stop when we're having so much fun...

Bonus 1.) The Committee was looking for evidence that job market gains would continue, supported by a pickup in growth. As it happened, the implications for the outlook of the evidence reviewed at the September meeting were mixed at best, while the ongoing fiscal debates posed additional risks. The Committee accordingly elected to await further evidence supporting its expectation of continued improvement in the labor market.

*‘As it happened’, helps to describe what did happen. Instead of reacting with appropriate communication in front of the meeting that the data on economic growth was insufficient to begin tapering, they figured that out at the meeting and not wanting to make a bad situation worse, chose to surprise with no taper rather than assume the potential negative consequence of tapering too soon.

Bonus 2.) When, ultimately, asset purchases do slow, it will likely be because the economy has progressed sufficiently for the Committee to rely more heavily on its rate policies, the associated forward guidance, and its substantial continued holdings of securities to maintain progress toward maximum employment and to achieve price stability.

*The asset purchase program could be slowed instead because of a heightened awareness that the efficacy of the program has been reduced to almost nothing.  We might not be there now, but we come closer with every dollar amount purchased. I do appreciate the reference to the 'stock' of securities holdings as supportive.

Bonus 3.) In particular, the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation.

*‘perhaps well after the unemployment threshold is crossed’ is another indication that we may not see a unemployment threshold reduction from 6.5% to 6% or lower.

Bonus 4.) I began my time as Chairman with the goal of increasing the transparency of the Federal Reserve, and of monetary policy in particular.

*It might have been better if your eight years started only after the economy had entered a recession. In 2005, monetary policy had already been too transparent in a ‘restrictive’ policy initiative to promote sensible credit and investment decisions. But thanks, your contribution to bringing about an understanding of the importance of guidance has been helpful.


Marty McGuire

About the Author

Martin McGuire, managing director at TJM Institutional Services

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