It was a news conference held by a central banker, full of empty words and invented phrases, signifying nothing new. A politician couldn’t have done better.
The Federal Reserve’s news conference today was a first for the notoriously secretive institution. It underscored demand for more scrutiny of the Fed following its asset purchase programs over the past two and a half years.
Federal Reserve Chairman Ben Bernanke used this news conference to affirm the Fed’s outlook on the economy, nothing the need to keep interest rates near zero for “an extended period.”
That’s Fed-speak for “more of the same.”
Rates aren’t going anywhere, and the Fed won’t shrink its balance sheet when its asset-purchase program ends in June.
As for inflation, it’s “transitory,” according to Bernanke — meaning he expects the recent increase to fade over time.
The numbers at the grocery store and the gas pump tell a different story.
Since the start of the year, gold has risen 7 percent. Silver has surged 49 percent. Grains and other agricultural commodities have risen an average of 15 percent. Oil prices have risen 19 percent.
The only thing that’s falling right now? According to the Case-Shiller Index, it's housing.
While the Fed’s stated goal is to create “price stability,” since the Fed came into being the value of the US dollar has been consistently debased. The dollar is currently at an all-time low when measured against the purchasing power of other currencies.
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Source: U.S. Bureau of Labor Statistics
Forex traders are eyeing the dollar as a potential short if it continues to break through to new lows. When the dollar falls, everything from commodities to stocks rise in price.
Markets continued yesterday’s rally, reaching session highs during the conference. That signals an expectation that the Fed will continue to provide liquidity as needed, even if it needs a new name.
The Fed’s other goal, promoting full employment, hasn’t been successful either. Bernanke noted that the unemployment situation is the worst of the post-World War II era, although there’s been a slight decline in unemployment since the beginning of the year.
While Bernanke heralded the lack of deflation and the slight decline in unemployment as progress, he admitted that there’s still a long way to go and economic growth remains weak.
Bernanke also mentioned during the conference that he’s an open advocate of transparency, and that markets would note the Fed’s planned actions and make price adjustments accordingly.
The markets heard Bernanke, loud and clear. It’s still risk-on for markets.
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