Instant View: Bernanke says Fed ready for further steps

NEW YORK (BestGrowthStock) – U.S. Federal Reserve Chairman Ben Bernanke said on Friday the recovery has softened more than expected and the Fed is ready to take further steps if needed to spur the stumbling economy.

KEY POINTS: * “The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” he said in remarks prepared for delivery at a Fed conference. * Bernanke said the U.S. central bank’s purchases of longer-term securities have been effective in lowering borrowing costs and that he believes the benefits of buying more such assets, if needed, would outweigh any disadvantages. * Other options — such as committing to hold rates exceptionally low for an even longer period than is currently priced in to markets, or raising the Fed’s inflation targets — would be less effective, he said. * However, he made clear the Fed has not decided what would prompt additional Fed easing.

COMMENTS:

STEPHEN MASSOCCA, MANAGING DIRECTOR, WEDBUSH MORGAN, SAN FRANCISCO:

“I don’t think he said anything new, he stated the obvious. It may be that things have gotten too beaten up here. Nothing happened today that was good. I guess GDP was not revised down as much as some people thought it was going to be revised down, but not enough to matter. Certainly nothing new from Bernanke. Intel maybe kind of sums it up if you want to look at why the market is up. The economy stinks, but at this point, is that discounted in the market that the economy stinks? And have stocks gotten too cheap? That would be a reason for the market to really. And we’ve got some short covering going on right now at a pretty good pace.”

PETER CARDILLO, CHIEF MARKET ECONOMIST AT AVALON PARTNERS IN NEW YORK:

“Bernanke is indicating the Fed is not worried about the economy going into double dip and not worried about deflation

or inflation. He basically maintained his status quo.

“Especially with the good GDP numbers today, Bernanke and other Fed members are singing to the same tune that yes, we are going through a soft patch but a double dip is not likely.”

DAVID DIETZE, CHIEF INVESTMENT STRATEGIST, POINT VIEW FINANCIAL SERVICES, SUMMIT, NEW JERSEY:

“People are disappointed — somehow there seemed to be an expectation that there would be some sort of new announcement on policy but the reality is that the type of speech at Jackson Hole, with a big meeting of central bankers, is just not the appropriate forum to be announcing anything like that. He seems to be reciting the woes that unfortunately we are very familiar with, justifying what they did earlier this month in terms of explaining the technicalities. But basically that is all stuff we knew. He is not giving us any straws to grasp at which would suggest an aggressive response to this steady drip of grim economic data.

“With the bond market, it is hard to tell if it is reacting to the better-than-expected GDP or is it reacting to Bernanke’s speech. The stock market came into this with some strength, and added to that strength with the better-than-expected GDP revision and then Bernanke has thrown cold water from the mountain tops of Wyoming on any hopes that we would be getting any firmer help up from the monetary authorities.

“He is not saying anything to change the big picture, and the big picture here is of a continued drip of grim economic tidings and the takeaway here is that unemployment is problem number one. Although we got a better-than-expected number for GDP, the tally we are left with for the second quarter is just not strong enough to make a dent in the unemployment figure. All the reports we are getting for the start of the third quarter suggest no improvement at best and perhaps further weakening, and economists are now ratcheting down their forecasts for the second half.”

JASON BRADY, PORTFOLIO MANAGER, THORNBURG INVESTMENT MANAGEMENT, SANTA FE, NEW MEXICO:

“I don’t think that there is anything tremendously surprising here. We have further evidence that the Fed is looking at its ‘arsenal’ and broadcasting that those weapons are available and effective. If they can get the market to believe that, then it would be an important step in avoiding deflation.

“Bernanke’s history as a Depression scholar and his published commentary about Japanese central bank policy being too weak also plays into this. He’s clearly knowledgeable about prior deep economic downturns and he is underlining his willingness to take aggressive action.”

TOM SOWANICK, CHIEF INVESTMENT OFFICER OF OMNIVEST, PRINCETON, NEW JERSEY:

“The Fed chairman acknowledged the obvious…joblessness remaining too high. But what he is really doing is telling everyone that ‘I think 2011 will shape up to be a decent year.’ He said: “Despite this recent slowing, however, it is reasonable to expect some pickup in growth in 2011 and in subsequent years.” I believe the markets will come back on this. Now, if Bernanke is wrong, he said that the Fed will stay accommodative.”

ANDREW HARDING, HEAD OF TAXABLE FIXED-INCOME, PNC CAPITAL ADVISORS, CLEVELAND, OHIO:

“It looks like he’s prepping for more quantitative easing, and that’s probably why bonds are doing better. However, it seems he’s prepping in case he needs it. It’s not a foregone conclusion. There is still debate about whether it should be done or not.

“It’s one of those situations where you have things that can go either direction. You really can’t short the market because there is potential of quantitative easing, but nor do you want to get long.

“From a trading standpoint, it’s extremely hard to predict the direction of interest rates from here. You can make all kinds of statements about value, but the reality is that could change very quickly with quantitative easing or the stop of quantitative easing.

“I find it very hard to call something a bubble where you’re going to get your principal back. And if you have deflation, bonds have a lot of value here.”

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO/MITSUBISHI UFJ, NEW YORK:

“The market was primed for action and they didn’t get it. If they were waiting for something, they were sorely disappointed.

“There’s no sign the Fed expects a double-dip recession. The Fed hasn’t agreed on what they need to do.

“Maybe the market was asking for too much. Jackson Hole isn’t an FOMC meeting. It’s a symposium.”

JOHN DOYLE, SENIOR CURRENCY STRATEGIST, TEMPUS CONSULTING, WASHINGTON:

“The comments are dovish, though the Fed has been pretty consistently dovish for some time now. His comments widen the scope for potentially adding to quantitative easing. That seems to have spooked the market a little bit, resulting in risk aversion.

“So you see the dollar gaining and stocks coming off. I think price action will be pretty choppy, but as the day winds down and people lighten positions, we’ll probably settle back into recent ranges. The euro fell (Read more about the trembling euro. ) about 40 points, but moving forward, I think we’ll end the day around $1.27.”

DANA SAPORTA, ECONOMIST, CREDIT SUISSE, NEW YORK:

“The Fed can provide the environment for renewed economic growth, but it cannot necessarily affect economic variables like employment. I think that’s underlying message here.

“Bernanke has not taken off the table more quantitative easing, specifically the buying of Treasuries outright, but it is unclear what would trigger that.”

SACHA TIHANYI, CURRENCY STRATEGIST, SCOTIA CAPITAL, TORONTO:

“He expresses the opinion that more long-term securities buying would be effective, which suggests he lies on the positive side of the quantitative easing argument should the Fed find it necessary to offset deflationary forces and bolster growth momentum. If anything I would expect this to be a weakening dynamic for the U.S, dollar but if equities respond very negatively, the classic risk aversion trade could stem that.”

MARKET REACTION: STOCKS: U.S. stock indexes fell and then recovered BONDS: U.S. Treasury debt prices slipped DOLLAR: U.S. dollar erased gains against the yen

Instant View: Bernanke says Fed ready for further steps