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.