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Bernanke Press Conference Wed am


pleasantvalleySunday
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APRIL 26, 2011, 3:57 PM ET

By Michael S. Derby

When Federal Reserve Chairman Ben Bernanke makes his debut press conference Wednesday at 2:15 p.m. Eastern Time, his every word will be parsed for signs of where he hopes to take U.S. monetary policy. Specifically, people want to know when the Fed will begin raising interest rates and when it will begin offloading its multitrillion-dollar cache of mortgages?

OB-MQ344_bernan_D_20110218090509.jpgReutersFed Chairman Ben Bernanke

If Bernanke had a long history of press Q&A sessions, the Kremlinology would be as advanced as it is with the European Central Bank, whose bosses have been giving press conferences following rate decisions for years.

For those concerned about the timing of interest rate increases, here’s what to watch for:

“Inflation expectations.” If Bernanke frets about longer-run inflation expectations rising in the face of surging commodity prices, it could signal a hawkish turn for monetary policy and increase the odds of tighter monetary policy coming earlier than currently expected. In other words, if he thinks Americans are increasingly worried that they’ll face higher prices in coming months, it means he thinks the Fed had better start moving against inflation by hiking rates before it spirals out of control.

A tip about TIPS: Watch for any comments about inflation-indexed Treasurys (known as TIPS.) Any mention of these bonds in conjunction with a reference to consumer-sentiment surveys may offer significant clues to Bernanke’s thinking. He could refer to them in a reassuring manner – as in, demand for TIPS and sentiment conditions seem benign. Or he could use them as props to tip his hand that he’s becoming worried about inflation. If he says something about short-term expectations having risen – it’s old news. He has acknowledged — and dismissed this – in the recent past, saying it reflects the clear-cut rise in food and energy prices which he believes won’t endure.

“Extended period”: This bit of boilerplate — which has appeared in Fed statements since the depth of the financial crisis – is code for: don’t expect us to raise interest rates any time soon. In essence, “extended period” has codified the zero percent short-term rate regime of the post-crisis era. This verbiage will almost certainly show up in the Federal Open Market Committee statement scheduled for 12:30 p.m. ET. During the press Q&A, Bernanke may be asked what “extended period” really means. Or he may be asked to put a date for when the Fed will drop “extended period” language for some new formulation. Bernanke is likely to dodge the questions.

Commodity prices: These raw input and basic material prices are surging and are at the root of the current inflation anxiety. Bernanke has in the past indicated that rising commodity prices are transitory and won’t feed into underlying or “core” inflation, a measure that excludes volatile food and energy prices. If, however, Bernanke says he sees surging commodity prices as a more enduring problem, it increases the odds of tighter monetary policy (aka interest rate hikes, among other things) sometime soon.

For those concerned about the Fed’s massive balance sheet and its bond-buying program set to end in the summer, here’s what to watch for:

Balance sheet: Look for Bernanke to affirm that its ongoing $600 billion Treasury bond buying program known as QE2 will end in the summer, as planned. Any deviation from that line would be big news. Watch what Bernanke says about the future size of the balance sheet because in this new world of Fed policy, how many securities the central bank holds is the primary signal of how much support it’s providing the economy; the Fed has injected more than $2 trillion into the economy since the financial crisis. It’s considered unlikely, but if Bernanke hints the Fed may stop reinvesting the proceeds from its mortgage holdings, it will be seen as the first step toward actual monetary tightening. Expect the dollar to rally if this happens as it would be a strong signal that the exit is near.

Dollar: It’s weak but Bernanke will be reluctant to take this on directly. A dollar question, however, could give him a venue to hit back at critics who argue current Fed policy has debased the dollar and driven money overseas in search of high-yielding instruments of the sort found in such emerging economies as Brazil, as well as commodities such as oil and gold. Bernanke has argued in the past that other central banks need to get their own policies straight and stop blaming the Fed for their own economic problems. Tuesday’s strong-dollar utterance by U.S. Treasury Secretary Timothy Geithner has given Bernanke some cover; if he’s quizzed about the dollar’s recent weakness, he can simply remind his audience that dollar policy is the purview of the Treasury and perhaps cite Geithner’s remarks.

It’s the economy, stupid: The elephant in the room – which Bernanke will likely be asked about – is the lousy state of the job market. The hole dug during the recession is so great that under almost any credible forecast it will take years for the unemployment rate to fall to acceptable levels. This is something Bernanke and his Fed peers have acknowledged repeatedly and yet they are almost certain to have to tighten policy to stave off inflation even if it doesn’t help reduce joblessness. It’s the rock and hard place that are hemming in Bernanke and his colleagues. Expect Bernanke to acknowledge improvement in hiring but not to wax too enthusiastically about the trend.

http://blogs.wsj.com/economics/2011/04/26/a-bernanke-press-conference-primer-for-the-uninitiated/

Bernanke Set to Tightrope Historic Press Conference

By Matt Egan

Published April 26, 2011

Read more: http://www.foxbusiness.com/markets/2011/04/26/bernanke-set-tightrope-historic-press-conference/#ixzz1KgQWMd7l

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