On the first day of his two-day Semi-annual Monetary Policy Testimony before Congress, Federal Reserve Chairman Ben Bernanke gave a vigorous defense of the Fed’s current policy stance. In particular, he systematically argued against the various proposed costs of QE. He also suggested the sequester could be a “significant headwind” and advocated replacing it with a longer-term deficit reduction plan. We interpret his comments as reflecting the majority view on the FOMC, which is likely to see the benefits of further QE outweighing the costs and thus supporting asset purchases well into 2014 should growth stay slow.
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