Jan Hatzius' assessment of Bernanke's first congressional testimony was just released. We assume it was not written while he was having lunch with Bill Dudley at the Pound and Pence.
BOTTOM LINE: Responding to questions from lawmakers following his semi-annual monetary policy testimony, Chairman Bernanke again characterized future changes in monetary policy as "changing the mix," rather than adjusting the overall level of accommodation.
MAIN POINTS:
Chairman Bernanke referred to potential future changes in monetary policy?implicitly speaking to expectations that the monthly rate of asset purchases will be reduced later this year?as "changing the mix" of policy accommodation, consistent with his comments last week. These remarks suggest that as the Fed tapers asset purchases, they may strengthen their forward guidance, leaving the overall level of accommodation unchanged in the Fed's view. Although he did not explicitly speak about lowering the unemployment rate threshold, these remarks may foreshadow a more explicit indication in the FOMC statement that unexpected weakness in inflation and/or labor force participation will effectively result in a lower threshold. Despite having ample opportunity, the Chairman did not significantly push back on expectations that tapering would begin in the next few FOMC meetings.