by Calculated Risk on 4/27/2011 10:14:00 PM

From Professor Tim Duy: Very High Bar for QE3

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Apparently the threat of headline deflation off the table, Bernanke is not inclined to pursue sustained easing despite low core inflation and high unemployment. Again, I am not entirely surprised, except that Bernanke appear to suggest we are much closer to an inflation tipping point than I would expect. He could have tempered these comments with a more forceful discussion of labor costs, but did not. It seems clear these comments were intended to calm the non-existent bond market vigilantes, but is it consistent with the outlook? Arguably, no. For what it’s worth, I think Bernanke appeared most uncomfortable during this portion of the conference.

Bottom Line: When I look at the revisions to the Fed’s outlook and listen to Bernanke, I get the sense that the basic Fed policy is summarized as follows: “The economic situation continues to fall short of that consistent with the dual mandate, we have the tools to address that deviation, but will take no additional action because some people in the Middle East are seeking democracy.”

The Fed's forecasts for inflation and the unemployment rate would seem to suggest more QE, but I think Tim Duy's assessment is correct: Bernanke has set the bar very high for QE3. And the odds of more fiscal policy aimed at the unemployed are zero.

Earlier:
• A few takeaways from Bernanke Press Briefing
• Q1 2011: Homeownership Rate at 1998 Levels