THE IMPORTANCE OF BERNANKE’S TESTIMONY
Fed chairman Ben Bernanke’s testimony to Congress will be important in setting the tone for the markets (particularly the dollar, equities and US treasuries), as traders hunt for clues on when the Fed is likely to ease its rate of asset purchases.
The greenback surged last week, with the dollar index reaching a three-year high, on the back of traders’ expectations that improving US economic data will lead the Fed to begin tapering its programme of quantitative easing, possibly as early as the middle of this year.
Minutes from the FOMC’s latest policy meeting in May will follow Bernanke’s testimony. However, it is likely that Bernanke’s testimony may take the edge off this release, in terms of market impact.
FOMC POLICYMAKER UNCERTAINTY
Bernanke’s testimony is crucial, given the mixed messages from Fed officials in recent weeks. For example, Charles Plosser has suggested decelerating the rate of asset purchases, also suggesting that the Fed shortens the duration of the bonds it currently holds.
Some FOMC members, like John Williams, are in favour of tapering asset purchases by the end of this year. On the other hand, Eric Rosengren has argued that now is not the time for the Fed to taper its asset purchases.
And this week, Richard Fisher came out in favour of slowing purchases of mortgage securities, saying the housing sector no longer needs the Fed’s support.