Yesterday, Federal Reserve Chairman Ben Bernanke gave a speech on the history of the Federal Reserve at the NBER conference in Boston.
Before he launched into his prepared remarks – much to the surprise of many observers – he told the audience that he would take questions on current Fed policy during the Q&A that would follow the speech.
In an interview with CNBC today, RBC’s Chief U.S. Economist Tom Porcelli accused Bernanke of “poor form.”
CNBC anchor Kelly Evans asked Porcelli, “Were you caught off guard as well by the fact that Bernanke in this Q&A addressed recent policy moves at all?”
Porcelli replied: “Yeah. You know, I think it was poor form by the Chairman to go into that, particularly after 5 PM – markets were already closed. It’s just not something we expected.”
Evans asked Porcelli to elaborate on why it was poor form.
“It was a time issue. It was well after the markets were closed. It was hard for the market to digest it,” said Porcelli. “At that hour, particularly in the Treasury market, as an example, there is very thin liquidity, so the market was able to get pushed around a little bit, particularly after a couple of comments that he made.”
Evans then pointed out that there was follow-through today – markets are moving in the same direction that they did after Bernanke’s comments last night.
Porcelli countered this by clarifying between today and last night: “At that hour, 100% I think there was an exaggerated move. Today, I think there is just a misinterpretation of what he said.”
What’s the misinterpretation?
Porcelli says Bernanke’s answers in the Q&A weren’t as dovish as everyone makes them out to be:
We completely disagree with that as an idea. I don’t think he was dovish. He did say that they will remain highly accommodative, but again, I think context is key.
You have to realise that he was talking about it in terms of the two policy mechanisms that they have. One, of course, is asset purchases, and the other, of course, is the fed funds rate. And what he basically said was, “We will remain highly accommodative” – i.e., the fed funds rate will remain very low for an extended period of time.
“That’s an idea that he’s been talking about for weeks now at this point,” said Porcelli. “He’s trying to make a distinction between applying less pressure to the gas pedal and actually hitting the brake. And I think that was key.”
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