JPM's Take on Bernie's Speech

Without going in to the full analysis written by JPM's Chief economist, Michael Feroli, Bernie surprised the market today as I warned last night may happen this week with so many F_E_D officials speaking, the timing of Bernie's comments, pre-market, the day after the market put in its first red week all year and 2 days before window dressing effectively ends (now 1 day) because of the T+3 (Trade + 3 days) settlement rule was, well... notable. 


Feroli's analysis of Bernie's speech goes on about structural vs cyclical labor market conditions, but the main point was this, Bernie lit a match under the market with this sentence, "can be supported by continued accommodative policies." 




Feroli's take:


"Given  that unemployment is more due to cyclical rather than structural factors, there remains a role for countercyclical policy in supporting the job market. In particular, strong final demand growth "can be supported by continued accommodative policies." How one views the word "continued" in this context depends in part on whether it is the stock (or total announced amount) of asset purchases that matter for financial conditions, or whether it is the monthly or weekly flow of those purchases. Most at the Fed ascribe to the stock effect view, and thus the last easing -- at least from a balance sheet perspective -- took place last September when Twist was announced. In addition, according to the stock effect view the end of Twist purchases in June does not amount to a tightening, but rather is a continuation of the current accommodative stance of monetary policy. Thus, "continued accommodative policies" for a stock effect adherent would not necessarily imply an extension of asset purchases beyond June.