Given the recent rash of Federal Reserve officials opining on the need for more policy accommodation, investors were eager to hear what Chairman Ben Bernanke had to say on the subject today. They would have been just as informed had they kept their TVs tuned to the French Open.
The closest Bernanke came to tipping the Fed's hand in his testimony before the Joint Economic Committee of Congress was the boilerplate in his prepared remarks: "As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate."
Bernanke was less downbeat than expected on the economy in light of Friday's weak employment report. The average monthly jobs increase of 75,000 in April and May was either unseasonable weather wreaking havoc with seasonal adjustment factors, or the end of "catch-up" hiring by employers earlier in the year. Either/or. Take your pick.
Bernanke ducked direct questions on whether the Fed would initiate more quantitative easing, what the Fed would buy if it did (Treasuries or mortgage-backed securities), and if he would take QE off the table. He reassured his audience that the Fed has "tools that would allow us to get further accommodation into the economy" -- and tools to exit as well, without allowing inflation to flare.
The hearing was dominated by questions from committee members on Europe's financial crisis, which is pretty much Europe's to deal with, and on fiscal policy, which is a staple at Fed hearings. (Lawmakers always insist on discussing fiscal policy with the guy in charge of monetary policy. Maybe it's easier than, you know, doing their jobs.) Bernanke, for one, said he would be "much more comfortable" if Congress took some of the "burden" off the Fed.
Bernanke said deflation is not a concern right now, as it was in 2008. The issue for the Fed is whether economic growth is sufficient to reduce the unemployment rate, which has been stuck above 8 percent for 40 months. The closest we'll get to an answer will be contained in the Fed's forecasts for growth and unemployment, released at the conclusion of the June 19-20 policy meeting. And even then, as Bernanke reminded us, forecasting is "an imperfect science." Not to mention a dismal one.