Comments from NY Fed President Bill Dudley:

  • QE3 would continue at a higher pace for longer than Bernanke`s timeline if growth and labor miss forecasts
  • Timeline for QE3 withdrawal depends on economic outlook, not calendar
  • First rate rise a long way off, could come well after 6.5% unemployment is reached
  • Expectations for earlier rate rise `quite out of sync`with Fed statements
  • Fed likely to keep most assets on balance sheet for a long time
  • Expects 2013 GDP growth of 2.1%
  • QE may be prolonged if economy misses Fed forecasts
  • Economy may `diverge significantly`from FOMC forecast

The post I wrote below addresses the Fed`s somewhat fanciful forecasts. What`s happening is that markets overreacted to Bernanke. They are coming to terms with the numbers and realizing that tapering is less likely and rate hikes still on the ultra-distant horizon.

Bloomberg economics editor Michael McKee paraphrased it best: `Dudley: if we’re wrong, and we usually have been lately, QE continues and may be expanded. Meanwhile, no way rates rise before 2015.`

10-year Treasury yields fell as low as 2.46% after the comments and are trading at 2.48%. The US dollar retains a bid, curiously.