What Bernanke Really Said, Or How The Chairman Just Lost Control Over Policy Again
What he said is the FED is intervening and that they will not stop doing so. So much about the market that regulates itself (and this is bigger than it looks at the first sight) and so much about anybody complaining when BOJ does the same as FED
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Fed Put Reiterated, Credibility Gone Again
Overall, it was a quiet trading day until the 2 pm release of the June 19th FOMC minutes. The release prompted instantaneous sharp moves in several assets that quickly reversed. June 19th was a press conference meeting. Could anyone really divine anything from 6 week old minutes considering the Chairman clearly shared the FOMC view that day? Nonetheless, the day’s real fireworks occurred after hours as the Chairman’s Q&A comments at a speaking engagement sent the Dollar crashing and risk assets (Gold, Oil, Bonds and Equities) flying. Yes, Bonds are a "risk asset" these days.
Having watched the press conference, we think nothing notably new was said to indicate a policy shift. When asked about the policy outlook, the Chairman said, “I think you can only conclude that highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy.” This is not new considering the Fed has promised to keep rates low until 2015 and the Fed has repeatedly stated that reduced asset purchases equates to additional easing. Most of the Fed Chairman’s remarks were consistent with the statements he made at the press conference.
The Chairman’s statement that caught our attention and that we could see exciting markets was "And I guess the final thing I would say in terms of risks of course is that we have seen some tightening of financial conditions, and that if, as I've said and as I said in my press conference and other places that if financial conditions were to tighten to the extent that they jeopardize the achievement of our inflation and employment objectives then we would have to push back against that." There is nothing like a clear affirmation of the “Fed Put” to create another round of risk taking and aggressive behavior in the markets. The simplistic interpretation is that the Fed will never take away the accommodation, because the central bank cannot let markets “tighten,” which is a euphemism for go down.
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