Ben Bernanke is now appearing in front of the Joint Economic Committee in Washington. In the prepared statement, Bernanke said that monetary is providing significant benefits and that headwinds facting the economy have begun to dissipate. The Fed is not in a rush to taper off QE. Bond buying will likely continue at full steam. The big question is: will Bernanke hint about tapering QE? Most had not expected him not to say anything new and these expectations materialized. The US dollar is a bit lower, but it doesn’t go too far.
Update: When pressured, Bernanke did mention tapering, and the dollar is now on the rise. EUR/USD is back under 1.29, USD/JPY is at fresh highs above 103.50. Quite a drama.
Bernanke repeated the stance that the Fed is ready to increase or reduce the pace of QE. He defends policy and says that the policy helped offset deflation and that he is aware of risks of low rates. The Chairman said that premature tightening risks slowing or ending the recovery.
Yet again, Bernanke gently points a finger towards politicians: fiscal policy “to exert substantial drag on economy this year”. The Fed cannot fully offset the fiscal drag, says Dr. Bernanke. He also emphasizes the issue of unemployment and underemployment. He said it is costly and damages the economy’s potential.
Regarding inflation, Bernanke sees stability, below the 2% goal.
Most currencies weakened against the US dollar towards this event. The only pair that stood out was EUR/USD. The pair is now advancing towards 1.30, trading at 1.2985 at the moment.
USD/JPY is also falling from the highs above 103 and is now trading at 102.84.
Update: Asked about tapering, Bernanke acknowledges this option, and the dollar rebounds.
Existing home sales rose to 4.97 million .It expected to rise from an annual level of 4.92 to 4.99 million units.
The recent FOMC statement contained a phrase that QE could be increased or reduced according to the performance of the economy. Bernanke is predicted to repeat this.
Earlier FOMC speakers this week didn’t offer a timeline for tapering the QE and the dollar temporarily retreated. This is different than comments made by FOMC member John Williams last week, that mentioned that tapering (dollar positive) could happen as soon as this ummer.
Earlier commentary: EUR/USD Most Vulnerable Pair Ahead of Bernanke, FOMC Minutes
EUR/USD live chart: