Wednesday, July 13, 2011

Misc: Greece Downgraded, Did Bernanke shift on QE3?

by Bill McBride on 7/13/2011 01:00:00 PM

• From Bloomberg: Greece’s Issuer Default Ratings Cut to CCC From B+ by Fitch on Lack of Aid

Greece had its long-term foreign and local currency issuer default ratings cut to CCC from B+ by Fitch Ratings because of the lack of an aid program for the debt-laden country.
• Did Bernanke shift on QE3?

From Binyamin Appelbaum at the NY Times: Bernanke Says Fed Would Consider New Stimulus Effort
The unexpected weakness is forcing the Fed to reconsider its determination early this year to refrain from new efforts to stimulate growth. While no additional actions appear imminent, Mr. Bernanke said in Congressional testimony Wednesday that the Fed would be prepared to act if necessary ...

Mr. Bernanke made clear Wednesday that a resumption of the central bank’s economic revival campaign faces a high hurdle. He said that the Fed would look for two conditions: economic weakness beyond current expectations and a renewed threat of deflation.

The first seems obvious to most people. The second, however, may the more important factor.
From Jon Hilsenrath at the WSJ: Bernanke Shifts Tone on Further Policy Easing
Chairman Ben Bernanke acknowledged in his House testimony today that the Federal Reserve might need to take additional steps to ease monetary policy. “The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support,” he said.

This represents a slight shift in tone for the Fed chairman. In a press conference in June, Mr. Bernanke, in response to a question, laid out what the Fed COULD do if it saw a need to provide more stimulus to the economy. In his testimony Wednesday, he effectively said more stimulus MIGHT be needed, but only under certain conditions, namely persistent slow growth and a slowdown in inflation that again raises the prospect of Japan-style deflation.
This isn't like Jackson Hole last year when Bernanke telegraphed QE2. If this is a shift in tone, it is slight.