Quick Take: Hey, We're Still Easing -- Bernanke
NEW YORK (TheStreet) -- Federal Reserve Chairman Ben Bernanke is certainly in the financial spotlight today, with his testimony on Capitol Hill. Helping TheStreet's David Peltier and Joe Deaux break down what it means is David Weiman, economist from Barnard College.
The first headlines emerged from Bernanke's scripted testimony, when he said that bond purchases were not on a preset course, adding that tapering could occur in 2013 and possibly end in 2014.
Because this policy seems so loose, Weiman says that the Fed is obviously playing it by ear. While that may seem odd, it does make sense, he added, since the board wants to see stronger labor market growth, which is still far from satisfactory. Since the labor market and other data points continue to fluctuate, so does the Fed's stimulus policy.
While many analysts had expected tapering to begin in September, Bernanke did not set a date. Still, as Weiman said, it doesn't have a ton of choices because of the labor market and the fact that tapering could unwind years of work. if done incorrectly.
And since the latest CPI measurement actually ticked slightly lower, is
deflation
now becoming a worry?
Weiman says not so fast on the worrying. While inflation is just under 2%, it gyrates a lot, mainly caused by gasoline prices. With oil ripping higher, this has only increased the volatility.
Bernanke seems to remind Congress that the Fed can't fix everything when he's there, Weiman noted, adding that with government hiring slowing, it's only been the Fed on the national level helping to improve the economy.
Still, as he pointed out, all the Fed can really do is pump a bunch of money into the economy and drive down interest rates. Beyond that, it's pretty limited.
Essentially then, he said, the Fed has done its job -- which is to come in during economic distress, pump money in and taper off when things begin to improve. Although it's slow, the economy is improving, nonetheless.
The testimony today left equity markets slightly higher, along with gold and the Swiss franc. Weiman concluded that banks are holding a lot of cash in reserves and that business loans are growing -- albeit, slowly.
The labor market won't substantially improve until employment and small-to-medium business loans pick up. He added that Bernanke has probably learned that he needs to be a little more careful in the language he uses about quantitative easing.
-- Written by Bret Kenwell in Petoskey, Mich.
Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.