We do not do much in the way of Fed watching here in that we have little (or no) unique insight into the Fed decision making process. However when comments by the Fed chairman moves the market, as it presumably did yesterday it becomes of interest. They way we see it Bernanke is facing two simultaneous issues.
- As the newly installed Fed chairman Bernanke needs to establish his public presence in a forceful yet measured manner.
- However the economic and market conditions he is facing are rife with crosscurrents.
This combination is unfortunately working against his need to put forward a clear and coherent face on the economy and Fed's intentions thereon. Bernanke's comments elicited some excellent commentary from a slew of bloggers.
Jeff Matthews for instance is sympathetic towards Bernanke noting he is taking over for a Fed chairman who is viewed as a "legend" and put in place the policies that have put us at this crossroad.
James Hamilton at Econbrowser thinks Bernanke "means what he says and says what he means." That is important in that the risk currently is that inflationary expectations are beginning to ramp up.
macroblog notes the impact of Bernanke's statement on the Fed funds futures market. The market shifted quite quickly to a near 60% chance of a 25bp rate hike at the June meeting.
James Picerno at the Capital Spectator was the least amused by Bernanke's statement. He believes Bernanke risks losing credibility in the market by not clearly and consistently communicating his evolving views on inflationary risks.
There have not been much in the way of bull markets since Bernanke assumed his post. Maybe now we can count volatility as the first bull market of the Bernanke era.