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VIDEOBernanke Is a Dove, Not a Hawk
The Fed chairman and the FOMC pledge to keep interest rates low and will do all they can to prop up the markets.
For starters, let’s review the definitions of a hawk and a dove. Below is from Investopedia:
Hawk: An economic policy adviser who has a negative view toward inflation and its effects on society.
Dove: An economic policy adviser who promotes monetary policies that involve the maintenance of low interest rates, believing that inflation and its negative effects will have a minimal impact on society. This term is derived from the docile and placid nature of the bird of the same name, and is the opposite of the term "hawk".
Now let’s look at a few quotes from the chairman’s testimony. Below is an excerpt from Bloomberg:
"In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy,” Bernanke said yesterday in testimony before the House Financial Services Committee. “There are many ways to do that. This is one way.” (referring to extending the Bush tax cuts).
And these were some headlines, also from Bloomberg, that appeared on Wednesday:
"Bernanke Says If Recovery Seems to be Faltering, We Need to Review Our Options, Haven't Fully Done So Yet"
"Bernanke Says Options Might Include Changes in Language on Interest Rate Policy, Lowering Interest Rate Paid on Reserves"
"Bernanke Says Another Option Might Include Not Letting Securities Run Off Fed's Balance Sheet or Making Additional Purchases"
Now consider, from the most recent FOMC minutes, the dissention by the true lone hawk, Thomas Hoenig:
Mr. Hoenig dissented because he believed that, as the economy completed its first year of modest recovery, it was no longer advisable to indicate that economic and financial conditions were likely to warrant "exceptionally low levels of the federal funds rate for an extended period." Although risks to the forecast remained, Mr. Hoenig was concerned that communicating such an expectation would limit the Committee's flexibility to begin raising rates modestly in a timely fashion and could result in a buildup of future financial imbalances and increase the risks to longer-run macroeconomic and financial stability.
In my eyes, it doesn’t get any clearer. Bernanke and the Federal Open Market Committee have pledged to keep interest rates low as well as their support to the economy and will do all they can to prop up the markets. So stocks should head higher, but inflationary beneficiaries (hard assets and commodities) should outperform.
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