Fully Fed

Ben Bernanke held his second press conference. What did we learn?

From the Fed statement we learned that the Fed is aware of the recent economic slowdown. How could they not be? GDP is slower, unemployment is higher, manufacturing may have even declined in May, and auto sales were dismal. But they attribute the slowdown to temporary factors, like energy prices and supply-chain issues coming out of Japan, while they expect increased business investment and household spending to continue.

From the press conference we learned that the Fed’s long-term view of the economy is unchanged. They still see that unemployment can get down to about 5% and that the economy can grow between 2 ½ and 3%. No new normal here. They also believe that their securities purchases—QE2—have been an important part of eliminating deflation risk. But they noted that this is in the past; that there is no deflation risk now. So folks expecting QE3 any time soon will be disappointed.

From Bernanke’s tone we learned that he is still ever the professor, explaining the dynamics of core and headline inflation, outlining how money-market funds ran a stress test that included a Greek default, and the short-run and long-run effects of deficits and spending reductions. He runs the Fed in a collegial, first-among-equals manner, discussing economics and debating policy. That won’t change while he’s there.

And we learned that there was no dissent. The Board is on-board. Let’s hope they’re right.

Douglas R. Tengdin, CFA
Chief Investment Officer
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