Wednesday, July 21, 2010

"Unusually uncertain" - Bernanke's call

A great turn of a phrase to describe the current economy by Ben Bernanke. "unusually uncertain". Hard to say what that means, but the markets reacted immediately, risk-off. This certainly was not a confidence builder. The Chairman also said that he is prepared to act, but we do not know what action he will take. A news account mentioned that most of testimony was focused on exit and not on new stimulus. We also know that some Fed presidents want to raise rates. There is no clear consensus on what action can or should be taken. Rates could go to zero and QE can begin again, but the problem is that if the market environment is "unusually uncertain" there is little willingness to lend or borrow. Cash balances will accumulate and the economy will maintain a slow growth posture.

Sen Bunning asked the important question whether the Fed is out of bullet. Using this analogy, I would say the Fed is low on ammo and shooting blanks.

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