Ben Bernanke More Confident But Still Sees Fragile Recovery

In his testimony to a Senate panel of the new Congress, Ben Bernake said he sees some evidence of self-sustaining growth but not enough for the Fed to quit QEII. Although he did mention the risk of deflation still being there, his main focus was on unemployment: he said it would take a few years before the U.S. sees a normalized jobs market.

He stressed to the Senate panel that deflation would increase debt burdens and lower living standards. These two concerns led the Fed to launch the controversial $600 billion bond-buying program in November.

Bernanke’s prepared remarks show no sign that he is considering adjusting down the amount of securities purchased given the recent improvement in the economic data.

The Fed chairman defended the controversial $600 billion bond-buying program, saying it was not unlike conventional policy.

“Although longer-term securities purchases are a different tool for conducting monetary policy than the more familiar approach of managing the overnight interest rate, the goals and transmission mechanisms of the two approaches are similar,” he said.

Bernanke urged Congress to craft a credible program to lower the federal budget deficit, warning the government is now on an unsustainable fiscal path that might lead to broad financial turmoil if unaddressed.

Bernanke said the deficit plan has to be “one that markets will accept as plausible.”

He also said he'll be keeping an eye out for increasing inflation and take steps accordingly.


Reading between the lines, little has changed; the QEII's still chugging along. To the extent he had an influence on the gold market, it was positive: gold's 8:30 shoot-up and pullback proved to be the pause that refreshed. While he was testifying, the metal moved up from a little above $1365 to well above $1,375. It even got rolling a little while before he did.