Ben Bernanke Dangles QE, Redux

Is the public being hypnotized by US Federal Reserve Chairman Ben Bernanke?

I will give you stimulus, I will give you stimulus, I will give you stimulus, I will give you stimulus…

For the umpteenth time, from the Bloomberg, (emphasis added)

Federal Reserve Chairman Ben S. Bernanke said unemployment is still “far too high” and the Fed may take further steps to boost growth, such as buying mortgage bonds or changing the way it communicates its policy goals to the public.

Additional stimulus “remains on the table,” Bernanke said today at a press conference in Washington, declining to specify conditions that would prompt a move. “While we still expect that economic activity and labor market conditions will improve gradually over time, the pace of progress is likely to be frustratingly slow.”

Bernanke spoke after the policy-setting Federal Open Market Committee said the economy picked up in third quarter and repeated its statement from September that there are “significant downside risks” to the outlook. Officials kept policy unchanged, saying they would lengthen the maturity of the Fed’s bond portfolio and hold the benchmark interest rate near zero through at least mid-2013 if unemployment remains high and the inflation outlook is “subdued.”

Bernanke and his colleagues on the panel cut their growth forecasts for 2012 and said unemployment will average 8.5 percent to 8.7 percent in the final three months of next year, up from a prior range of 7.8 percent to 8.2 percent.

“The medium-term outlook relative to our June projections has been downgraded” and “remains unsatisfactory,” Bernanke said. “Unemployment is far too high,” and “I fully sympathize with the notion that the economy is not performing the way we would like.”

Again the repeated dangling of QE 3.0 or additional stimulus, which represent a monetary policy tool used by Central Banks called as 'signaling channel' or as the article implicitly puts it—“changing the way it communicates its policy goals”—have been directed at conditioning or manipulating the public’s expectations.

We are being treated like Pavlov’s dogs. According to Wikipedia on Classical conditioning, Pavlov used a bell to call the dogs to their food and, after a few repetitions, the dogs started to salivate in response to the bell. The dogs are the financial markets, and the ringing bell is the signaling policy used, and the food is the QE 3.0. In essence, the financial markets are being conditioned to be dependent on US Federal Reserve or central bank policies.

Bernanke must be pleased with how equity markets has responded to his communication tool (see above table from Bloomberg), which seem to have neutralized the surprise developments in Greece.

Yet, the constant conditioning being applied to the market is most likely meant not only to project policy “transparency” but also to reduce political opposition to Bernanke’s favorite tool.

With US money supply growth exploding, which may perhaps be indicative of indirect tools being utilized by team Bernanke, QE 3.0 seems no more than a formality.

On the count of three, you will awaken…