Thoughts on Bernanke's Second day talking to congress

Comments and thoughts from Bernanke's second day with Congress.

- Bernanke thinks that economic growth will decelerate, but is likely to turn up later this year and in 2013.
-The Fed thinks that tight lending conditions and fiscal policies (or lack there of) are holding back the potential recovery. However, the Chairman also expects these headwinds will fade over time.
- Bernanke stated that employment growth has been and will be "frustratingly" slow.
- Energy price declines are bringing inflation rates down, indicates that inflation is not an issue hindering monetary actions at this time. 
- The downside economic trajectory and low inflation rates led the Fed to the extension of Operation twist 2.
- There was a "lively" debate between Ron Paul and Bernanke pertaining to the transparency of the Fed and the "Audit the Fed" bill. This will no doubt end up on youtube at some point.
- Bernanke reiterates the statement that any further Fed action will be precipitated by further economic and employment downside. 

 Our Comments....
The Fed is not ready to move on any further easing at this point. We believe that a QE3 program (or whatever the powers that be decide to call it) will be predicated on a sustained negative trends in employment data. This, of course, implies that traders watch (no matter how manipulated) the monthly employment statistics released by the BLS. In addition, investors and traders can also gain insight into unemployment trends by watching the weekly jobless claims numbers, the ADP employment report, and the regional manufacturing indicators for more clues.

We are surprised that Bernanke continues to cites low inflation rates due to a reduction in energy prices. So are we to understand that when inflation accelerates that we should look at the so called core inflation rate but when energy prices decline we should look at the total CPI?

Bernanke continues to defend Fed actions (why would he not) despite repeated attacks (rightfully so in our opinion) by Ron Paul and other similar Fed opponents. Clearly Bernanke believes (at least publicly) that the Federal Reserve acted rightly and lawfully in the face of the economic malaise over the last few years. We have read many opinions defending and criticizing the Fed, and whatever your opinions, we think John Hussman laid out the case as to how the Fed broke the law. (found here- http://www.hussmanfunds.com/wmc/wmc101122.htm) This is a must read.