Last night’s comments from Yellen were probably a preview of Bernanke’s testimony today.
Earlier in the week, I was skeptical that Bernanke would hint at further action today but Yellen’s comments changed that.
She noted “substantial” risks to the downside and said “it may well be appropriate to insure against adverse shocks that
could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.”
She also showed a slide that demonstrated the Fed has plenty of ammunition in 3-6 year holdings to extend Operation Twist.
The market didn’t react strongly to Yellen but perhaps traders aren’t assigning enough clout to Yellen because she was such a dove as President of the San Francisco Fed. Since her appointment as Vice Chair, she scaled back calls for further action… until yesterday.
If Bernanke’s comments mirror Yellen, expect gold to surge, commodities to climb and commodity currencies to benefit most.
