So, Fed Members Said Some Stuff…

In case you were out fishing for the past few days, markets rallied yesterday afternoon and again today (before fading late in the day) on speculation that QE3 might be on the horizon.  My favorite quotes are as follows:

Bernanke’s Humphrey Hawkins Testimony (Via PragCap, my emphasis in bold)

“On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further. One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels. Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings. The Federal Reserve could also reduce the 25 basis point rate of interest it pays to banks on their reserves, thereby putting downward pressure on short-term rates more generally. Of course, our experience with these policies remains relatively limited, and employing them would entail potential risks and costs. However, prudent planning requires that we evaluate the efficacy of these and other potential alternatives for deploying additional stimulus if conditions warrant.”

Unfortunately, due to the limited experience with these policies, we don’t KNOW what the risks and costs are. *gulp*

Dallas Fed’s Richard Fisher talked down BB’s offering (via Barry Ritholtz):

“I firmly believe that the Fed has already pressed the limits of monetary policy. So-called QE2, to my way of thinking, was of doubtful efficacy, which is why I did not support it to begin with. But even if you believe the costs of QE2 were worth its purported benefits, you would be hard pressed to now say that still more liquidity, or more fuel, is called for given the more than $1.5 trillion in excess bank reserves and the substantial liquid holdings above the normal working capital needs of corporate businesses…US banks and businesses are awash in liquidity. Adding more is not the answer to our problems.”

I am with Mr. Fisher on this one.

Finally, Josh Brown caught another good one from Bernanke, where The Chairman used the technical term “pretty soon” to describe when the employment situation will get better (emphasis mine):

“The sense is that employers are becoming more willing to hire and I think we’ll start seeing some stronger payroll reports and some lower unemployment rates pretty soon.”

So don’t worry about that elevated unemployment rate, generational low in the labor force participation rate, etc etc etc.  It will all get better PRETTY SOON.

Of course, there was also the whole Ron Paul – Bernanke “Is gold money?” situation, which I am intentionally avoiding as it can do nothing but derail the thread.  I may delete comments that get into a debate on the subject of gold as money (or not money) – fair warning.


ps – I don’t agree with everything they write, but I agree with Cullen Roche’s QE3 view here (“How can the Fed possibly justify a QE3?”) , and MISH’s QE3 view here (“The only way you cannot see any arguments against QE3 is if you are blind.”).


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