With Fed chairman Ben Bernanke on Capitol Hill presenting his semi-annual monetary policy report to Congress, stock markets are under notable pressure.
Bernanke’s full written testimony is now available.
So here’s an update from Mohamed El-Erian, the PIMCO chief executive, adding to his earlier preview on FT Alphaville.
Chairman’s Bernanke’s written statement has just been released. It is as expected in the earlier FT Alphaville post. Importantly, the Chairman refrains from saying anything new on policy measures. Instead, he repeats what has been done (and said) before and notes that the Fed stands ready to do more as needed. When it comes to the discussion on policies, Chairman Bernanke prefers to return to the issue of “exit” (from unconventional policies) rather than be specific of additional policy steps.
In addition to these general comments, three (more detailed) factors warrant mention:
First, the statement contains another official acknowledgment that the high level of unemployment will persist for an unusually long time;
Second, it explicitly recognizes the increasingly structural dimensions of the unemployment problem, including the risk that long-term joblessness undermines the productivity of the labor force and can evolves into permanent unemployment; and
Third, it is unusually candid about the country’s increasingly cloudy economic prospects, including pointing to the “unusually uncertain” outlook
Not surprisingly, the combination of a more cautious economic outlook and the lack of forward-looking policy specificity have led to an immediate and generalized sell-off in US equities.
Related links:
El-Erian: What to expect from Bernanke’s report to congress – FT Alphaville
Bernanke cautions on ‘uncertain’ US outlook – FT