A dark picture


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Do you think Mr Bernanke's testimony was foggy enough?

Since last December, the Fed has been saying short-term interest rates—now near zero—won't go up at least until the jobless rate drops below 6.5%, and as long as inflation stays near 2%.

But Mr. Bernanke suggested the Fed might keep rates near zero long after the jobless rate, which was 7.6% in June, falls below that 6.5% threshold.

If very low inflation accompanies a drop in unemployment, Mr. Bernanke said, the Fed might feel less urgency about pulling back on cheap credit.

Mr. Bernanke repeated his recent public comments when discussing another aspect of the Fed's easy-money policies, its $85 billion-a-month bond-buying program. He said the Fed could start winding down the program in the months ahead if growth picks up as expected and low inflation moves toward the Fed's 2% objective.

"Because our asset purchases depend on economic and financial developments, they are by no means on a preset course," he said.

Thus, every option is on the table and the Fed has its hands free!


Chinese Finance Minister followed Bernanke's testimony with a statement published on the ministry's website on Wednesday saying:

China is unlikely to use massive fiscal stimulus policies this year, but policy support for economic growth and employment could be adopted.

The message was not different from what Mr Lou said in a keynote speech at the U.S.-China Strategic and Economic Dialogue last week:

China will not make any big shifts in its short-term macroeconomic policies and will make greater efforts to push ahead with reforms.

As you can see none of them cleared out the use of massive fiscal stimulus, although the "unlikely" used by Mr Lou has been perceived as a stronger commitment to not fload the market with liquidity this year.

Earlier in the morning the minutes of the Bank of England July 3-4 meeting, the first under Carney, showed that Mark Carney and fellow policymakers voted unanimously against more bond purchases earlier this month, surprisingly setting aside their differences ahead of a review on giving guidance about future interest rates.

An expansion of the asset purchase program remained one means of injecting stimulus, but the committee would be investigating other options during the month, and it was therefore sensible not to initiate an expansion at this meeting.

Again the asset purchase remain in place.. but...

The picture i got this morning is dark: policy makers find themselves unable to come out from the liquidity trap they have created . To me it seems the behaviour of the trader who trades without a stop loss, he does not know where and when will exit the trade therefore he stays in hoping the trade to turn green, until he find that his capital has been completely wiped out.

I hope that my picture is wrong.

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