Fed’s First-Ever Press Conference Is A Signal?

The Federal Reserve is always in the news these days–but typically after the fact. That is, after a Fed decision is made.

Today, the Fed made history and held its first-ever press conference, with Fed chairman Ben Bernanke answering reporters’ questions on inflation, QE2 and such. Why this new effort of transparency? Perhaps the Fed is worried that high unemployment, high oil prices and the high rate of foreclosures is too much for our economy to handle.

What did we learn from today’s press conference?
Fed funds rate will stay unchanged, and the Fed raised inflation projections and lowered GDP projections. While inflation expectations could put the Fed behind the curve, the Fed is starting to look toward its exit strategy in regard to QE2. Bernanke did reaffirm his plan to end QE2 n June. QE2 hasn’t caused inflation, but it does appear if the Fed moves to QE3, inflation might rear its ugly head. However “to get lots of job growth, we have to keep inflation under control,” Bernanke reiterated.

He did make some clear statements that sent signals which experts such as Charles Calomiris, professor at Columbia, saw as encouraging:
-Controlling inflation is very important;
-The tradeoff between inflation and unemployment is disappearing;
-Long term unemployment is not within the scope of monetary policy, and the Fed isn’t going to tighten just yet.

How did the markets react? Gold prices rose, commodities soared, and stocks went up too. Will this happen with every succeeding Fed press conference? Unlikely. But the Fed has 8 chances to decide to raise/lower interest rates this year, so we shall see.

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