Bernanke admits to being baffled...
"Why have long-term interest rates not risen more, as they have done over previous policy tightening cycles? And what implications does this pattern of long-term interest rates have for monetary policy and the economic outlook? As you will see, in my remarks I will do a better job of raising questions than of answering them. In particular, I will conclude that the implications for monetary policy of the recent behavior of long-term yields are not at all clear-cut."
And criticizes Greenspan's slow motion policies saying:
"The tightening cycle that began at the end of June 2004 is notable in at least four respects. First, its onset was delayed for longer than many observers expected. The FOMC kept policy unusually accommodative for an extended, or should I say for a considerable, period. The goal, as you know, was to help ensure that the economic expansion would be self-sustaining and to protect against a remote risk that the fall in inflation observed during 2003 might culminate in outright deflation--an outcome that could have had potentially serious consequences for the economy and for the efficacy of monetary policy"...
Then, he proposes a "global savings glut"...as a solution to the "low rates problem"
But could it also be a "liquidity glut" with money trapped in the hands of the rich as global wages have fallen...thus causing our current "asset inflation" and "bond inflation"...without the expected increase in prices at the consumer level...?
Finally, he promises to look at multiple variables and not be tied to a "favored" number or index saying:
"Ultimately, a robust approach to policymaking requires the use of multiple sources of information and multiple methods of analysis, combined with frequent reality checks. By not tying policy to a small set of forecast indicators, we may sacrifice some degree of simplicity, but we are less likely to be misled when a favored variable behaves in an unusual manner."
And what does this all means for tomorrow's trading?
...well stay tuned!
But Wall Street's "Simple Simon" number dejour approach to data points seems to be on the losing end as far as this new FED chairman is concerned...and that means Bernanke will look at the dollar, the deficits and the current account as well as the need of the Street for constant liquidity to finance Stock Speculation!
