A Guide to Bernanke’s Humphrey Hawkins Testimony

Posted February 27, 2012 by Editor

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• Bernanke’s upcoming Humphrey Hawkins testimony on Wednesday may be less exciting than usual.  His cautious assessment of the outlook and his implicit bias to ease has already been delivered recently in both his January press conference and February testimony to Congress.  While both were given before the impressive February jobs report hit the tape, Bernanke is unlikely to upgrade his economic assessment greatly after “just one good number.” 
• The recent spike in oil prices may give Bernanke another reason to talk down the outlook and to be cautious.  He may note that higher oil prices this time last year took a big bite out of a promising 2011 outlook.  Such talk will be treated by investors that the bar is lowering for QE3.
• But higher oil prices will also lift headline inflation, a concern already noted by at least one FOMC member, with core inflation rising and close to the 2% quasi-formal inflation target.  We still think that it would take further weakness in the economy, such as a significant backup in the unemployment rate from 8 ¼% or a sense that GDP growth is dipping below 2% to adopt QE3.
• There may be a compromise QE 2.75 in which the balance sheet is not expanded but the composition changes in favor of mortgages (to do “something” for housing). 

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