I could comment extensively on Ben Bernanke’s speech and Q&A at the National Press Club yesterday, as I partially and fully disagree on many of the comments he made. I find it unfortunate that official transcripts of this and previous Q&A sessions are not available. (speech video and transcript; Q&A video and partial transcript)
One aspect that I would like to briefly comment upon is that of the success of QE2. Quantitative Easing’s primary goal is to lower interest rates. However, during QE1 and (to date) QE2, interest rates have risen, not declined, since the program was begun. This is highly important and notable, yet doesn’t receive proper recognition. It begs the question as to whether QE1 and QE2 are failed interventions.
Proponents of QE2 claim that it is “working” or is “effective” as the stock market is rising, GDP is rising, or use a variety of other arguments to justify the program. However, that does nothing to change the fact that interest rates have risen, not declined, under QE2 (and QE1).
This passage from yesterday’s speech is notable with regard to the above:
“Yields on 5- to 10-year Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases. All of these developments are what one would expect to see when monetary policy becomes more accommodative, whether through conventional or less conventional means. Interestingly, these developments are also remarkably similar to those that occurred during the earlier episode of policy easing, notably in the months following our March 2009 announcement of a significant expansion in securities purchases. The fact that financial markets responded in very similar ways to each of these policy actions lends credence to the view that these actions had the expected effects on markets and are thereby providing significant support to job creation and the economy.”
A Special Note concerning our economic situation is found here
SPX at 1307.10 as this post is written