Federal Reserve Chairman Ben Bernanke backed away slightly from promising a third round of stimulus measures, telling a Senate panel Thursday that the central bank "is not prepared at this point to take further action.
The comments during his second day of congressional testimony sent the US dollar higher and caused stock to pare their gains.
On Wednesday, Bernanke suggested to a House panel that the Fed was ready to take further steps to boost the flagging US economy. That sent stocks soaring and pushed the dollar lower.
But on Thursday, Bernanke seemed to back away a bit from that plan.
"The situation is more complex," he told the Senate Banking Committee. "Inflation is higher…We are uncertain about the near-term developments in the economy. We would live to see if the economy does pick up. We are not prepared at this point to take further action."
He also said a third round of stimulus may not be that effective.
–CNBC
Bernanke did not “back away slightly from promising a third round of stimulus measures”. Hello?
On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support.
On the other hand, the economy could evolve in a way that would warrant a move toward less-accommodative policy. Accordingly, the Committee has been giving careful consideration to the elements of its exit strategy, and, as reported in the minutes of the June FOMC meeting, it has reached a broad consensus about the sequence of steps that it expects to follow when the normalization of policy becomes appropriate.
One thing I like about the Fed Chairman is that he speaks in understandable prose, unlike his predecessor.
Why did everyone think the Fed will ride to the rescue? It’s wishful thinking – a perfect illustration of confirmation bias in action. Who know; maybe people will come out of this MORE convinced that Bernanke is about to hammer out the keystrokes.