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On Friday, the financial markets were abuzz with the notion that Ben Bernanke stated “all other things being equal, there appears to be a case for more action.” The knee jerk reaction was predictable, the US Dollar fell and bonds climbed, however, by the end of the US trading session these trends had reversed … why?
I would point to other portions of Chairman Bernanke’s speech where he spoke about the risk and rewards of unconventional monetary policy. One of the most surprising admissions by the Chairman was that he did not know the ultimate impact of QE2. From the speech:
"One disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument, which makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public."
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