The gist of Bernanke’s speech is: why is unemployment falling when growth stinks?
Better jobs numbers seem somewhat out of sync with the overall pace of economic expansion
He doubts that GDP will be revised higher:
It may be that future data revisions will show that real GDP grew more quickly over the past year than currently estimated. However, although it is certainly possible that revised data will ultimately explain part of the puzzle, at this point we have no specific evidence suggesting that such a revision might be in the offing.
He also doesn’t seem to believe that jobs have been significantly overstated:
On balance, an assessment of a broad range of indicators suggests that a substantial portion of the decline in the unemployment rate does reflect genuine improvement in labor market conditions.
He speculates that the rise in unemployment rate in the crisis was too large relative to the decline in GDP in that time, perhaps reflective a fear premium. Now, he says, that premium could be coming out. This seems to be his base case.
Basically, he says that the Fed is in data-watch mode with a dovish bias:
It will be especially important to evaluate incoming information to assess whether the recovery is picking up as improvements in the labor market feed through to consumer and business confidence; or, conversely, whether the headwinds that have impeded the recovery to date continue to restrain the pace at which the labor market and economic activity normalize.
Bernanke is certainly not hinting at any move toward less accommodation.
Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.
You could argue that ending Operation Twist is less accommodative, so there is some evidence here that Bernanke is ready to print more if we start to see some weak economic data. The takeaway is that USD will be ultra-sensitive to data over the next two months.
