Monday, March 26, 2012

Bernanke to Markets “The FED is in Charge”

So, pretty much every Forex analyst (us included), spent the weekend writing up trading previews for this week talking about the plethora of US economic data coming out this week.  And how a positive run of economic news may finally cause the FED to lay off on its talk about a possible QE move.  Well, Fed Chairman Ben Bernanke wasn’t willing to wait until the end of this week to make any decisions and was pretty straightforward in his remarks to the National Association for Business Economics (the same members that earlier published a report showing a wide majority against QE).

Bernanke stated that the US needed to experience faster growth if it wants to lower the unemployment rate.  Interestingly, he also downplayed the present drop of the unemployment report to 8.3% from 9.1% as “out of sync.”  To support faster growth, the FED chairman supported an application of further accommodative actions.  Bernanke’s statements have been interpreted as a signal that the FED has no plans to shelve its QE policies and Forex traders can expect the FED to act soon.

On the news, the dollar was sent lower as commodities, riskier assets, and equities all gained.

From Reuters:
Bernanke said the recent decline in the jobless rate, which dropped to 8.3 percent in February from 9.1 percent last summer, was "somewhat out of sync" with the rather modest pace of economic growth.
U.S. gross domestic product grew 3 percent in the fourth quarter, but is expected to have slowed to just below 2 percent in the first three months of this year.
Bernanke said the recent drop in the jobless rate could reflect an effort by businesses to recalibrate their payrolls after unusually heavy job cuts during the recession. If this is the case, he said, progress may stall.
"To the extent that this reversal has been complete, further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies," Bernanke told a gathering of the National Association for Business Economics.
U.S. stock index futures extended their gains and government debt prices trimmed their losses after Bernanke's comments. The dollar turned negative against the euro and trimmed its gains versus the yen.
Bernanke reiterated his concern about long-term unemployment, but argued against the notion that much of the problem is due to structural factors that monetary policy could not address.  Read More

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