“Bernanke dashes hopes of new easing” says the front page of the FT as he said “monetary policy cannot be a panacea” with the difficult economic backdrop we currently face. The market obviously responded lower but Bernanke’s speech was instructive in another way, understanding his psyche to see where he may go from here. As has been clear over the past 4 yr’s, we know Bernanke will take out every single weapon he has because he and other colleagues believe that their medicine is the right prescription for the disease that ails us. In yesterday’s speech, Bernanke claimed no responsibility for the side effects of extraordinarily accommodative policy. He claims it doesn’t debase the $, it hasn’t lifted commodity prices and what he said in the past (not yesterday), it was the lack of regulation that caused the credit/housing bubble, not Fed induced cheap money. Thus, if he sees no negative unintended consequences of his policy, both past and present and still believes cheap money will help (although not a “panacea”), QE3 and more will always be on the table with Bernanke IF things get much worse. Whether the rest of us agree with it or not of course doesn’t matter, we know how Ben feels and our $14T+ economy in many ways is subject to this one guy.
