Chairman Bernanke delivers cautious message

2012-APR-26

“Steady as she goes” was the message from Federal Reserve Chairman Ben Bernanke during a press conference yesterday following the Fed’s latest Open Market Committee meeting. Though the FOMC once again reiterated its commitment to keeping interest rates at 0.25% until late 2014, Bernanke appeared to scotch rumours of new imminent stimulus measures. One reporter asked Bernanke why – given unemployment remains at 8.2% and inflation close to 2% – the Fed wasn’t going to be doing more QE, to which Bernanke responded: “I guess – the question is, does it make sense to seek a higher inflation rate in order to achieve a slightly increased reduction – a slightly increased pace of reduction in the unemployment rate? The view of the committee is that that would be very reckless.” The Fed also raised its US economic growth projections for 2012 from 2.2-2.7% to 2.4-2.9%.

Conclusions? As far as the gold and silver markets were concerned, this was all much ado about nothing. Gold and silver both sold off prior to Bernanke’s press conference, but recovered later in the session. Given Bernanke’s relatively hawkish pronouncements, it looks like the gold consolidation is set to continue for a little while longer – though as per usual, Bernanke left the door wide open to further easing, noting that the Fed would continue to monitor “whether unemployment is making sufficient progress towards our objectives.”

In other news, the UK has slipped back into recession, with GDP growth down 0.2% in Q1. The country now confronts the pain of highish inflation (3.6%) combined with no-growth – in other words, stagflation. There are no easy ways out of this bind for either the Bank of England or the British government, though the possibility of additional quantitative easing from the BoE looks highly likely.