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US Markets Live transcript 27 Apr 2011

Posted by Cardiff Garcia on Apr 27 19:00.

Markets Live chat transcript for the chat ending at 19:27 on 27 Apr 2011. Participants in this chat were: Cardiff Garcia John McDermott Gavyn Davies Neil Hume, FT

Evening gents, we’re just getting a few things sorted and then we’ll begin

Good afternoon!

Right then, the countdown has begun

Welcome to

the Fedopolis

Fedapalooza

Fedstock

The World Fed

Bernanke Bowl

Meet the Fed

Fedeopardy

The first regular press conference in the Fed’s history

And not before time

We had the first communications of fed policy in 1994

The first regular statements in 1999

And now, in 2011, the first presser

In 2025 we’ll see Fed Chair Ben Bernanke participate in his first ever Markets Live

Maybe

What? I showed up for the End of Days, based on the media hype

All we’re getting is a press conference

Disappointing

Speaking of which

Nothing’s been this hyped since the first edition of US ML, but whatever

Let’s get on with it

What did the FOMC statement say earlier

Here’s the live feed: http://www.ustream.tv/federalreserve

John, I hear we’re joined by someone who actually knows something about monetary policy this time round

Yes

Our fellow FT blogger

Gavyn Davies

Is here with us again

So rabble, be nice

Gavyn, take a bow

Hi everyone

Before Ben gets going can we take another quick look at the statement?

The statement was a slightly dovish I think

By the way, here’s the statement in full, for reference

No threat of any rate rise soon, which is important

And the stuff on ending QE2 is a bit ambiguous

Really? The press core seems to think it’s over.

Done

Finished

Kaput

It says the Fed will “complete” bond purchases at end June

But it doesn’t specifically say that will be the end of it, period

In fact, it says the Fed will keep the size and composition of the balance sheet under review

So I think there is a bit of ambiguity for Bernanke to clear up

Never

Deliberate ambiguity? We’ll soon find out

Ok Gavyn

Imagine you’re a journalist

(sorry)

what are your questions to Bernanke?

First, will there be any further net bond purchases after June — simple answer please!

Second, will the Fed continue to re-invest bond principal redemptions after June?

Also simple!

Third, do any FOMC members want to shrink the balance sheet after June?

evening all

just got home and logged in

evening neil

Fourth, did you mean to increase the concern over inflation with the small change in today’s statement?

Fifth, did you mean to downgrade your growth views with today’s statament?

Oh and….what do you expect to happen to fiscal policy in the next 12 mths?

Simple

And how does that affect monetary policy?

Here he comes!

Warning

press conference can not be viewed on on Ipad

They have just released their forecasts

Opening remarks

lets time how long the opening bit lasts

Here we go: first a review of the statement; here we go

maintaining existing policy of reinvesting

going forward, reviewing size of composition etc…

I’ve got the forecasts

real GDP 2011: 3.1 – 3.3

here they come

@outlaw they have a document

down from 3.4 – 3.9

in January

Unemployment

but not as good as the BoE rport on inflation

8.4 – 8.7

is the table up in the Fed site?

January: 8.8 – 9.0

http://www.federalreserve.gov/newsevents/press/monetary/fomcprojtabl20110427.pdf

will focus on the central tendency projections

PCE inflation

2.1 to 2.8

January: 1.3 – 1.7

so 2.5 – 2.8, unchanged from jan

Core: 1.3 – 1. 6

5.2 to 5.6 for unemployment for long-term

January: 1.0 – 1.3

no increase in structural unemployment

Doqw up 36 points at the moment

(All those central tendencies)

so there is still a ton of cyclical unemployment – dovish

@praxis, it’s perpetually quavery

inflation “target” is 1.7 to 2.0 in medium term

no he didn’t give an official target

he’s doing well at reading the forecast

it’s just the implication from the way he expresses the medium term inflation range

same wording on inflation “target” as before

markdown of growth in 2011 reflects problems from Q1

hmm

his voice seems to waver every now and then

still expects unemployment to get to 8.4-8.7 by year-end, then down to 7.6-7.9 by end of next year

note he is emphasising that unemployment is too high – dovish

now talking about commodity prices; inflation expectations still stable

@Gabriel, no, but it’s clear the committee thinks they’re temporary: weather, oil, Japan, etc..

@Gabriel Bergin No – we need to wait till his Q+A for that, or the minutes in 3 weeks

Seeing movement in USTs

Inflation rise looks like a concern

He does sound very nervous doesn’t he??

it does

and yes

he sounds petrified

bring on the questions

who will be first

@High Financier No he denies that – he must be wrong!

Fedwire himself?

Nope

Surely not

John Hilsenrath of the WSJ

Must go with a wire

@HighFinancier, hope he gets asked that. But previously his allies Yellen and Dudley have emphasized other factors, mainly EM demand

now repeating stuff from the statement, mostly; KEEP MOVING BEN

Here. We. Go.

here we go

Cardiff…

question about tomorrow’s Q1 GDP

what’s behind weaker forecast

Soft ball!

totally

Actually, going to rate the questions

lower defense spending

he has left the QE2 issue entirely open ended — nothing definitive at all!!

dollar is weak

10 = hardball

to be made up later; weaker exports

1= softball

Euro trading at $1.47 at the moment

expects that to pick up; “weather and so on”

but

worried about construction, res and non-res

“roughly, most of hte slowdown is viewed by the committee as being transitory”

a bit less momentum

who was that from?

SPEAK UP!

Q1 GDP under 2% but only a transitory slow-down – probably right, but not proven

who is that?

FedWire>

asked what “extended period” means

Fedwire younger

Better question

let’s see if he answers it; hasn’t yet

looking at employment and inflation. gee, how revolutionary

answer it Ben

come on

Extended period – no attempt to seriously define what it means

“to answer your questions, i don’t know exactly when tightenign will begin”

I don’t know exactly

great answer

he doesn not seem to me to have ruled out QE3 — surprisingly ambiguous language on this

extended period depends on resource slack, stable inflation expectations

aha!

a couple of meetings probably

Trichet is a lot more confident than this isn’t he!

he will do his best to communicate changes

depends on economy!

question on the dollar

Steve

he called him Steve!

question: critics have said that fed policy has lowered the USD and reduce American standard living. how do you respond?

steve from CNBC?

kicks it to geithner

Neil, yes

Soft/boring ball question

why doesn’t someone ask him whether the balance sheet will stay the same after June??

CNBC all over

Currently I think he has said less about a definite end to QE2 than the market expected

says he’s trying to keep inflation low, and “that’s good for the dollar”. strong economy will also attract foreign capital

USD fluctuates, he says, in part because of the safe haven effect.

good point Gavin

blah blah blah

he’s not saying much at all

on that

because he has not yet said that QE2 will end in June in so many words

ITS FEDWIRE

here comes hilsenrath of the WSJ

himself

asks if there is anything the Fed should do about gas prices

surely he knows the answer

already

and he hasn t said the balance sheet will stay the same

and asks for comment on increase in inflation forecast

long end of the yield curve up

not that i’m a conspiracy theorist

do these omissions mean that this is still undecided?

but some bloggers were calling that question

SOMEONE PLEASE ASK HIM THIS!

PLEASE

(Lorcan – Trichet is the master of the central bank press conferences. he bats everything away)

“our interpretation of the increase in gas prices is supply and demand”, EM demand

@TED, think it’s harding

here he goes – Fed has not caused higher commodity prices….

but it has caused higher equity prices

it’s all down to the middle east

you can watch it on YV

On the supply side, disruptions in MENA. no mention of leakage from QE

“Fed can’t create more oil”. they must have removed that bit from Dodd-Frank

meh

bloomberg news

@jtapp I understand your point but at present

first person to name his company

asks for definition of stronger job creation and sustained period

@jtapp, fair point but allowing him to waffle more

he is leaving me in doubt about exactly what the Fed has said about QE2

that question was better

saying he was worried before launching Qe2

about employment

but it has improved

just rehashing recent months’ numbers on job creation

gradually

but he wants to make sure its sustainable

but the pace is still very slow

I agree with Patrick McGavcock

FT’s Harding

FT man!

Nice glasses

says a number of measures of inflation expectations have climbed. is there anything hte Fed can do to prevent them from getting unhinged

Did he buy them specially?

Says he is concerned about medium term expectations – not short term — again dovish

Bernank says near-term inflatioon expectations up, but “for the most part i think it’s fair to say that medium term inflation expectations haven’t moved very much”

“what can we do? we can communicate and make sure the public understand what we’re willing to do.”

@Tish — not an expert on that unfortunately

says if inflation persists, there’s no substitute for action

another question

slightly stronger words on inflation – better ending in my view

how long with the Fed reinvest?

question on what will be the impact on the jobs recovery of the end of QE2, and how long will the Fed continue to allow for reinvestments

his view is

based on past experieneces

good question, but why split it

so the bond purchases WILL end with no taper

the end of QE2 won’t affect financial markets

says the end of the program is unlikely to have significant effects on financial markets

because “we’ve telegraphed what we’re going to “

do”

right

says effects would have been priced in

that’s how it works

leaked to Fedwire

this is the portfolio balance stuff — ie what matters is the stock of bond purchases

and we are all prepared

now making the pro-stocks, anti-flows case

not the flow

yep

size of the portfolio

Ben’s been reading Paul Krugman’s blog

that’s the important thing

fed economists have been banging on about this for the last year or so

the size remains constant

(and his earlier academic literature)

so no major affect

on the markets

so he thinks the end of QE2 will be no big deal unless they reduce the flow

Gavyn — is that your view?

the amount of Monetary policy easing

remains constant

sorry — unless they reduce the stock

he mentions

exit policy

yes, I agree with him on this

@Lorcan, yep, that’s what Gavyn’s been saying

early step could be

to stop reinvesting

but take note

That was interesting

that step

is a policy tightening

however, he has now saids that he might shrink the size of the balance sheet fairly soon

i’m confused now

decision to be based on the evolving outlook

right

“Lowering the size of our balance sheet would be tightening”. We have to make that decision based on the outlook. so hasn’t decided

He seemed keen to stress the end to reinvestments point

“is it in the fed’s power to reduce unemployment more quickly?”

this last stuff is a bit more hawkish — ie the balance sheet might start to drop fairly soon

Relatively unmprompted?

The David Leonhardt question

I agree – he has now explained the end of QE2 fairly clearly

@NH, @Lorcan — stopping reinvesting

the proceeds of securities

now rehashing steps taken to this point (fin crisis emergency measures, LSAP, etc…)

The question for bonds is whether you believe him that the stock is what matters (fairly bullish)

Anyone else think he’s hitting his stride now?

yes

Or whether you think it is the flow that matters (fairly bearish)

says that if inflation expectations become unmoored, there will be a cost to employment in the future

he’s growing on confidence

nice self-pat on the back there

Could be a Princeton seminar room

another question

@Fernando maybe but he sounded like it could be fairly soon

what positive effects have there been from QE2

question from NPR says QE2 hasn’t done much to help the economy

yes he sounds MUCH better now

what can bernanke point to

and can you end in June with unemployment at 9%

and what do you know

it was effective

The flow didn’t matter in the UK last year, or when the Fed ended QE1

says policy reduced spreads in credit markets, vol came down, all the effects you’d normally expect via a more typical easing

so far, this is a strong performance

has confirmed end of QE2

hinted at ending reinvestments

no major slips

or, am i being too kind?

around 10 mins to go i reckon

evidence on real economy: between late august and early this year, forecasters upgraded, stronger labour markets, etc…

says nobody should have expected this step to be a panacea

JM — his words are clear, his voice has been a bit wobbly, but better now

I’d say strong performance from the perspective of explaining steps already taken; weaker on projecting what he’s going to do

hang on

trade offs

less attractive

@LorcanRK, well said

His verbal statements are a heck of a lot clearer than the FOMC statement!

sustainable recovery needs inflation to be under control

interesting

reinforces the point that long-term employment dependent on keeping inflation low

Maybe the statement had to be made confusing to get unanimity?

new question

oil prices will stabilise

or come down

if they do

that’s his ready response, it seems, to the Leonhardt/unemployment questions

Fed close to medium term objectives

@GD — yes, see UN Security Council resolutions

again emphasizes medium-term inflation expectations

He is very undecided about the impact of oil prices but note again he said “medium term” expectations

is this significant?

RTRS-BERNANKE-TRADE-OFFS OF DOING MORE QE ARE GETTING LESS ATTRACTIVE AS INFLATION IS GETTING HIGHER

asked if the Fed can effectively reduce long-term unemployment

Yes – significant

10-year yields above 3.37 on tradeweb

BB says 45% of all unemployed are 6 months +. “people who are out of work for a long time, their skills tend to atrophy”, networks are lost

This suggests he might have done MORE QE, but inflation stopped him

Or as one of the editors here just said “about where they’ve been for ever and ever and ever”

hmm

that is interesting

the old cyclical-turns-to-structural unemployment if not addressed now

the Fed worried about inflation

the oldies are always the best ones, CG

true indeed

@shothotbot

sorry

that was good

but it suggests he wants unemployment down soon

yep, BB now saying there aren’t tools to target long-term unemployment specifically

uh oh, Fox is up

Fox Business yes

question about S&P’s call last week

is he worried about losing AAA rating

surprise….

S&P didn’t tell us anything!

we all know the US has a serious fiscal issue

well, he’s right about that

“it’s the most important economic problem, at least in the longer term, that the US faces”

that was 0.5

btw

so…will the Fed stay easy if Congress tightens?

Is there a US version of Plan A?

next question pls

in other words

S&P constructive if it goads a response, he says

pipe down fox

the Fed names badges are awful

yellow bit of paper

what about something nice and plastic

well done Mr Berry

question: is there anything the Fed can do if there are large budget cuts?

he mentions the UK

exactly what GD was wondering. would Fed offset if there’s austerity

interesting topic — what’s monetary policy’s role when fiscal policy can’t be used

good question

@highfinancier, gold is always up

japanese newspaper

Fed might be willing to help if economy slowed under fiscal tightening

But he hasn t seen any tightening yet!

asking about general uncertainties in the world economy

basically: “what is going on in the world Ben?”

@praxis22, hmmm…. surely could’ve been more specific?

Global factors making the world uncertain says Ben

I reckon this press conference was a good idea

yes

it’s much better

than the ECB version

i feel we have learnt something

@DROPNYC

now talking about Japan, US collaboration in FX intervention. BoJ has done a good job

I definitely feel we have learned a lot

fair point

i’m cranky

He is fairly dovish, but ready to start to reduce the balance sheet somewhat before year end

impact of Japan on US: mostly supply-chain problems, especially for autos

(lots on this in the last Beige Book, btw)

he is doveish but it’s interesting to note how he empathises with the hawkish view

moderate and temporary, though

speaking as the FOMC rather than just the Chair

Will the hawks make speeches which suggest they don’t fully agree with his spin?

suspect that eventually they will. previous non-dissents haven’t stopped them before

“monetary tinder”

presser now going for 45mins

will Ben go for an hour

has he had a sip of water yet?

“we view our monetary policy as not that different from ordinary monetary policy”

agree with Rain

@Red Knight — FOMC views, with a touch of his own spin, but not that much

running out of time for some brave reporter to wonk out and ask about NGDP or price level targeting

AFP

@DPOPNYC yep

Agence-France with a question about the “evolution” about USD

the traditional “strong and stable dollar” defense

He really doesn’t worry about the weak dollar, does he?

hypothetical question that had already been covered

Brent @ 125.13 at pixel time

question

joke!

his is that rare news conference that actually makes news before it happens.
Can you talk a little bit about your decision to take this historic step of holding a news conference after a fed meeting, what anxieties you may have had to do it and how facing the media compares to facing Congress.
>> CHAIRMAN BERNANKE: Thanks, mom

Bernanke asked about his anxieties

Bernanke just crushed CBS

for being sycophantic

good answer

Well, the Federal Reserve has been looking for ways to increase transparency now for many years. We have made a lot of progress. It used to be that the mystique of Central Banking was all about not letting anybody know what you were doing.

central bankers always love sycophants

terrible question

hang on

We have become a very transparent Central Bank.

really

“we’ve become a very transparent central bank”. unless you want to know who borrowed from our discount window. or used talf money.

EUR= 1.4742

he left out “once the supreme court makes us”

CG that would be asking too much, despite Dodd Frank

heh

I have always been a believer in providing as much information as you can to help the public understand what you are doing, to help the markets understand what you are doing, and to be accountable to the public for what you are doing.

zzzzzzzz

And here is some more

think the counter argument has always been that that if there was a risk that the chairman speaking might create unnecessary volatility in financial markets or may not be necessary given all the other sources of information that come out of the Federal Reserve. It was our judgment after thinking about this for some time that at this point the additional benefits from more information, more transparency, meeting the press directly outweighed some of these risks.
I think over time we will experiment to try to make sure that this is an effective venue as possible.

Rogoff

Rogoff is there!

he’s not a hack

evict him

now

reference to Reinhart-Rogoff’s this time is different

How did he get a ticket!

SECURITY

asks if people are asking too much of the federal reserve

call SECURITY

I EVEN PLAY CHESS AGAINST HIM

huge book plug

from Ben

hang on

says recoveries following financial crises are slow, but book doesn’t give a full explanation of why that’s the case

some criicism of the book

Right, next time we’re doing ML from the presser

time for a primer on balance sheet recessions

when do I get to plug my book?

“another possible explanation is that policy responses were not adequate”

GD, anytime you want!

go for it

Ok I’ll write one then

we qwill get Robin Harding

to drop it in

at the next presser

Two different views: one emphasising debt, the other the need for big responses to financial recessions

Who’s next?

Greenspan?

this going a bit flat

Anyone think this evidence is BEARISH for bonds or equities? Please shout

this time is different, for what it’s worth, links the two

Unlike the yield curve

(sorry)

come on Ben

the Classico is on

finish this

that’s it

and we’re done

and that’s all

parting thoughts?

Thank you very much. And thank you for coming.

that was an abrupt end

just cut it dead

what’s all this about Rogoff being a chess grandmaster – so what? I am a 14 handicapper at golf

(The conference concluded at 2:13 p.m. CDT)

he went on almost for an hour

My take — a good thing to do, but clearly dovish

live text stream stopped

I agree

a good thing to do

no imminent rate rise, no change in the balance sheet until later, and then relatively small

anybody spot an interesting market move while this was happening?

RTRS-DOLLAR HITS FRESH THREE-YEAR LOW VS SIX MAJOR CURRENCIES AS BERNANKE CONDUCTS PRESS CONFERENCE

30-year still down, but slowly picking up a bit: yield just under 4.46

there’s one

Bernanke talks the dollar down — my summary

interesting

Thanks all — let’s quickly just look at any market moves, get GD’s summary, and review the main points

can we have some more on that please GD

he has seen the dollar dropping but has said nothing to imply that it will change his view on monetary policy

Here’s the key text on the Dollar

Well, as I said earlier, we do believe that a strong and stable dollar is in the interests of the United States and is in the interest of the global economy.
Our view is that the best thing we can do for the dollar is first to keep the purchasing power of the dollar strong by keeping inflation low and by creating a stronger economy through policies which support the recovery and cause more capital inflows to the United States. Those rt kinds of policies that in the mean term will create the conditions for an appropriate and healthy level of the dollar.
So I don’t think I really want to address a hypothetical which I really don’t anticipate. I think the policies that we are taking not with standing short-term fluctuations will lead to a strong and stable dollar in the medium term.

the ECB and BoE always show some concern about the currency — the Fed almost never does

(Nobby – yellow card for that)

his statement about wanting a strong dollar means very little

quite

he’d like it

in an ideal world

note that he expects a strong dollar “in the medium term”

but he’s really not too bothered

it’s Tim’s problem anyway

Markets will like this central banker – he is still a dove

but there comes a point where input costs suffer so much from a weak dollar that any gain to exports are canniablised

right

some comment coming through

I have something from Alan Ruskin at Deutsche Bank

if you want it

sure

Good night all — thanks for inviting me in

Thanks Gavyn!

1. Higher FOMC core inflation forecasts (for all of 2011 through 2013) are important new pieces of information. Policy geared toward guarding against risks of deflation are plainly less necessary. If we put 1.45% core PCE (the centre of the FOMC’s 2011 projection) into Taylor Rule (using Taylor’s formula), only an output gap at close to 6% of GDP can justify policy near current levels. With these kind of underlying inflation numbers the risk is that policy will be too accommodative more easily than may have been previously assumed.

this is Ruskin

2. Bernanke says Fed expects Q1 GDP little under 2%… a surprise admission pre-announcing Fed data expectations. Slowdown viewed as transitory, although acknowledging some loss of momentum, so dovish message on short and medium-term growth.

3. Fed main inputs to timing of tightening: Is the recovery sustainable, and looking at labor market, looking at inflation and inflation expectations as most important variables

4. He signals extended period language means couple of meetings before a tightening after it is removed, but leaves a little wiggle room on this definition.

5. On USD – points to Geithner statement yesterday. Strong economy (growth and low inflation) will generate a strong USD, but he does not explain how/if a strong USD will generate a strong economy. Its all about causality and he has chosen to emphasize only one side of the US econ – USD linkage (when it could also be argued that a weak USD is helpful for growth, which would have been a very negative USD signal).

6. Stock effect more important than the flow effect, so the end of QE2 will not have a substantial impact on yields. If you believe him, OK for bonds, but USD would probably prefer a modest back-up in yields.

7. Bernanke notes not rolling over maturing securities would reduce balance sheet and constitute a tightening. Clearly not ready for that, and would be viewed as a significant step.

8. Positive effects from QE – He saw it in financial markets, easing financial conditions (equities, spreads, reduced vol). Inferred another round of QE would be difficult because of inflation risks, were they to try further support employment.

9. Fiscal deficit/debt if not addressed would have serious consequences. Preference to deal with long-term deficit is to have a longer-term vision. No signal that anything seen on fiscal side, needs to prompt a change in the conduct of monetary policy, so ducked issues of future fiscal drag which is perfectlky reasonable because scale of fiscal consolidation is unknown.

10. Reaffirms conduit through which monetary policy works is through financial conditions (equities, s/t and l/t rates, credit spreads and the USD), rather than traditional monetarist “quantity” measures like the money base or money stock. Infers that FCI is not signalling significant L/T inflation risks.

>>>>>So far not going to change perceptions of a dovish Fed, or dent the positive global risk appetite view, that has also translated into a softer USD.

that’s pretty much what GD said

Dovish Fed

and that means

a softer dollar

Fresh three year lows

Against six major currencies

Wednesday, April 27, 2011 3:09:40 PM RTRS – DOLLAR HITS FRESH THREE-YEAR LOW VS SIX MAJOR CURRENCIES AS BERNANKE CONDUCTS PRESS CONFERENCE .DXY EUR= JPY=

EUR=1.474

JPY=82.20

The dollar slipped to a fresh three-year low against major currencies on Wednesday as Federal Reserve Chairman Ben Bernanke gave little indication that the central bank is close to tightening monetary policy. The dollar, which has been under persistent pressure in recent months, fell to its lowest since 2008 against a basket of six currencies. The dollar index fell as low as 73.445 <.DXY>, not far from an all-time low hit in July 2008. Investors have pointed to loose Fed policy as a source of dollar weakness. Bernanke told reporters at a briefing that a strong dollar was in the U.S. interest but said the central bank could best ensure a strong currency by creating the conditions for solid growth.

GBP=1.66

CHF=0.8576

@Klepto: most of AV is off

but Cardiff is on email Emoticon

S&P500: 1,352.77
+5.53 (0.41%)

Let’s wrap this up

@Klepto, no markets live Friday, if that’s what you’re asking. But we’ll be back the next week

yep

Time to close up shop

Real/Barca is on

Thanks everyone

yep

good session that

Fun session

Dirck — sorry

Will get to your question

like the ones we used to have in the melt down

Another day

very exciting

Bye!

cya

Bye all!

This entry was posted by Cardiff Garcia on Wednesday, April 27th, 2011 at 19:00 and is filed under Uncategorized. Edit this entry.

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US Markets Live transcript 27 Apr 2011

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