Bernanke gave a speech today titled: “Recent Developments in the Labor Market”; he referred to the current situation in the labor market and stated “despite the recent improvement, the job market remains far from normal”; this speech rekindled the speculation of another monetary intervention by the Fed, i.e. QE3. The market reaction was very clear and rapid as gold price rose by 1.78% and the U.S stock markets also sharply rose. Does this mean there will be another stimulus plan? As always the answer is – it’s complicated.
I have already talked in the past about my position (and guess) regarding quantitative easing plan 3 and I suspect there won’t be any big announcements by the Fed in the next FOMC meeting to be held at the end of April.
But the recent speech of the Fed’s chairman did seem to rekindle the belief in the financial markets that there will be another QE plan in the near future. The Euro/USD sharply rose by 0.66% and gold price added 1.78% to its value on Monday following the speech (before closing).
In the speech, Bernanke stated that the recent improvement in the labor market was rapid and he is not sure if this growth rate will be sustainable or will the unemployment rate start rising again.
Bernanke also stated that:
“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,”
This means a stimulus plan or QE3 is still on the table even though Bernanke didn’t refer to this issue; he just kept this option on the table without committing to it.
If the upcoming U.S non-farm payroll report will not show growth it could raise the chances of QE3.
But I think there were several indications that the U.S economy is expanding not only in the labor market but also in production:
The U.S. GDP expanded by 3% in Q4 2011 – a higher rate than in the previous quarters;
The Philly Fed Index also rose in the past several months;
The U.S jobless claims fell below the 350k mark;
U.S. manufacturing PMI is still rising;
These are just a few financial reports that show the progress of the U.S economy. Therefore, despite the concerns Bernanke voiced, there are many indicators that show signs of recovery. Sure, it doesn’t mean we are out of the woods, but the current situation isn’t that bad for another QE plan.
On top of that the U.S is in an election year when a lot of funds will be spent for the elections.
Nevertheless, Bernanke’s speech will probably keep gold and silver prices high and may ignite their recovery from their poor performance in February and March, at least until the next FOMC meeting at the end of April.
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