Bernanke Definitively Says 'At Some Point'

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Anyone expecting Federal Reserve Chairman Ben Bernanke to tip his hand on reducing the pace of asset purchases will have to wait a few more months. Bernanke's testimony to the Joint Economic Committee of Congress today gave no hint the Fed was ready to pare its monthly purchases of $85 billion of Treasuries and mortgage-backed securities until the outlook for employment improves.

Here's a recap of what he said in his prepared testimony and the Q&A, interspersed with a few comments of my own. You can decide for yourself what it means for the next meeting on June 18-19:

On the Labor Market:

"Weak overall"

High rates of employment and underemployment are "extraordinarily costly" -- to new entrants to the labor force; to the economy's productive potential; and to the budget.

On Inflation:

"Too low"

The price index for personal consumption expenditures rose 1 percent in the year that ended in March, versus the Fed's target of 2 percent.

Inflation expectations have remained stable.

On Fiscal Policy:

"Significantly more restrictive" at the federal level.

Will exert "significant drag" on the economy this year: 1.5 percentage points, according to the Congressional Budget Office.

Long-term budget path is still unsustainable. (You folks have more work to do. It's not my job to tell you how to do it.)

On Monetary Policy:

Providing "significant benefits." Low real rates are encouraging purchases of homes and durable goods.

Can't offset full effect of fiscal tightening.

Main risk is undermining financial stability. We've got this one covered by enhanced monitoring and regulation.

In addition to Bernanke's statements, New York Fed President Bill Dudley yesterday suggested it was too early to start tapering monthly purchases. Actually, what he said was such a classic non-statement, I include it in full:

Because the outlook is uncertain, I cannot be sure which way -- up or down -- the next change will be. But at some point I expect to see sufficient evidence to make me more confident about the prospect for substantial improvement in the labor market.

Thanks for the clarification. Having heard from two of the three members of the Fed's Troika this week -- the third is Fed Vice Chairman Janet Yellen -- stock and bond markets can party on.

As Fed officials have pointed out, even a reduced pace of asset purchases, when the time comes, is still stimulative.

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