Bernanke's statement cautious, but not different: JPMorgan

In an interview on CNBC-TV18, James Glassman, Senior Economist, JPMorgan Chase Bank, says Ben Bernanke’s statement is more of a reassuring message. Bernanke said on Wednesday that he still expects to start scaling back its bond purchase programme later this year, but left open the option of changing that plan if the economic outlook shifted.

Glassman says, this message was for those who thought that this is going to happen regardless. He says the markets are getting used to the idea and realize that the Fed is not planning to do something that would hamper recovery. He believes the Fed is talking about tapering only because it feels further asset purchases won’t be necessary if the economy is on the process of recovering. "So, it is not a very different message, but it is a little more cautious," he adds.
Also Read: Rupee to see 58/$ again; Fed testimony benign: Geosphere Below is the verbatim transcript of James Glassman's interview on CNBC-TV18 Q: How are you reading Ben Bernanke's statements that have come out and the market itself is factoring perhaps September-October could be when the tapering could begin, is that the base case for you as well? A: Probably. I think this is a more reassuring message that when the Fed begins scale back, it will be because the economy does better. The initial fear when people first heard the Fed talking about scaling back asset purchases, they had a sense that this is already programmed given where the economy was already and I think what the Chairman is trying to say is that their expectation is the economy is going to be doing better and therefore why would they need to continue with these asset purchases. So, my guess is a lot has to happen for the Fed to begin to do this but eventually, the economy has been doing better, employment has been doing better, there is a general expectation that the US economy is going to pick up speed slowly in which case, it makes sense to think that they are going to be able to start scaling back the asset purchases. So the Chairman’s message was a little more reassuring for those who thought that this is going to happen regardless and what the chairman is saying is they have expectations that things are going to be better and therefore it would make sense, which is why the equity market is responding favourably and it is able to digest the idea that rates will gradually be moving higher. Q: Do you see this statement as any different from what he made earlier, even in the earlier statements, the inference was that the bond buying programme timeline would not be set in stone? A: We have always thought that these actions from the Central Bank - line not clear - on economic data but when the market first heard the conversation, it was a bit of a shock because people were not prepared to hear a change in this conversation yet. The US is still sort of going through headwinds from the fiscal side and people have been talking about this. So I think the initial shock – this message today is no different from the Chairman’s message that he gave last week. But what is happening is the markets are getting used to the idea and they realized that the Fed is not planning to do something that would derail recovery, they are only talking about this because they think it is not going to be necessary to be doing asset purchases if the economy is on the process of recovering and if inflation picks up and if the job market continues to improve. So you are right, it is not a very different message, but it is a little more cautious.