Bernanke’s Comments Mirror Those of Pre-QE 2.0 in 2010

Bernanke’s comments seem as writing on the wall for QE 3.0

This is from yesterday’s comment by Ben Bernanke. From the Bloomberg, (bold emphasis mine)

Federal Reserve Chairman Ben S. Bernanke said record monetary stimulus is still needed to boost a “frustratingly slow” recovery and repeated that a rise in inflation is likely to prove temporary.

“The economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed,” Bernanke said today in a speech to a conference in Atlanta. At the same time, the Fed “will take whatever actions are necessary to keep inflation well controlled,” he said.

Recent data showing weakness in the economy, including a rise in the unemployment rate to 9.1 percent in May, have increased the odds the Fed will hold the benchmark interest rate near zero into next year. Bernanke said growth is likely to pick up in the second half of the year as fuel prices recede and disruptions of parts supplies dissipate as factories in Japan recover from an earthquake and tsunami.

“Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers.”

Here is Bernanke’s pre-QE 2.0 statement in March 2010

From Bloomberg, (bold highlights mine)

Federal Reserve Chairman Ben S. Bernanke said the U.S. economy still needs low interest rates and that the central bank will be ready to tighten credit “at the appropriate time.”

“The economy continues to require the support of accommodative monetary policies,” Bernanke said today in prepared testimony to the House Financial Services Committee, repeating parts of a statement to the panel from last month. “However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus.”

The central bank chief and his colleagues have been outlining their strategy for tightening credit in time to prevent the recovery from stoking inflation. Officials are concerned that the federal funds rate, their main policy tool for 20 years, isn’t as effective as before in influencing borrowing costs.

“As the expansion matures, the Federal Reserve will need to begin to tighten monetary conditions to prevent the development of inflationary pressures,” Bernanke said in the text of remarks. “We have full confidence that, when the time comes, we will be ready to do so.”

See that poker bluff?

First Bernanke talks ‘weakness’, then he talks of the need for policy accommodation to justify their proposed implied actions and lastly assures the public that the Fed knows how to go about with the ‘exit’ approach. It’s all signaling channel or the conditioning of the public for an upcoming move.

Finally here is Bernanke’s speech in October 2010 or a month before the activation of QE 2.0

From the US Federal Reserve, (bold emphasis mine)

Despite these challenges, the Federal Reserve remains committed to pursuing policies that promote our dual objectives of maximum employment and price stability. In particular, the FOMC is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate. Of course, in considering possible further actions, the FOMC will take account of the potential costs and risks of nonconventional policies, and, as always, the Committee's actions are contingent on incoming information about the economic outlook and financial conditions.

Sounds very much like QE 3.0 is underway.

UPDATE: I don't expect QE 3.0 to happen immediately. The span of QE 1.0 and QE 2.0 was around 5 months, i.e. end of QE 1.0 in June 10 and the activation of QE 2.0 on November 2010. That's why there will be more managing of the public's 'inflation expectations' over the interim.