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Bernanke looks to keep his nickname “Helicopter Ben.” Federal Reserve Chairman Ben Bernanke told Congress Wednesday that a new stimulus program is in the works that will entail additional asset purchases, the clearest indication yet that the central bank is contemplating another round of monetary easing. Bernanke said in prepared remarks that the economy is growing more slowly than expected, and should that continue the central bank stands at the ready with more accommodative measures. “Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation,” he said

My question Mr. Bernanke, if QE1 & QE2 did not spur job growth, what makes you think QE3 will? This will only spur artifical wealth to the middlelclass while the rich keep on getting richer. The only bright side I see to this is that pension funds and municipalities will have more time to recoup the loses incurred during “The Great Recession”. The dollar will continue to be devalued.

“However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate.” Markets reacted immediately to the remarks, sending stocks up sharply in a matter of minutes. Gold & Silver prices continued to surge past record levels, while Treasury yields moved higher as well.

Delivering his twice-a-year economic report to Congress, Bernanke laid out three options the central bank would consider.

One option, Bernanke said, would be for the Fed to provide more “explicit guidance” to the pledge that rates will stay low for “an extended period.” Another approach would be another round of asset purchases, or quantitative easing, or for the Fed to “increase the average maturity of our holdings.” Bernanke said the Fed could launch another round of Treasury bond buying, the third such effort since 2009. It could cut the interest paid to banks on the reserves they hold as a way to encourage them to lend more. The Fed could also be more explicit in spelling out just how long it planned to keep rates at record-low levels. That would give investors confidence about the Fed’s efforts to continue supporting the economy.

Bernanke maintained that temporary factors, such as high food and gas prices, have slowed the economy. He said those factors should ease in the second half of the year and growth should pick up. But if that forecast proves wrong, he said the Fed is prepared to do more. (More likely to be launched by 2012 just in time for the election year) Bernanke also said it was possible that inflationary pressures spurred by higher energy and food prices may end up being more persistent than the Fed anticipates. He said that the central bank would be prepared to start raising interest rates faster than currently contemplated, if prices don’t moderate. Bernanke’s comments about inflation spoke to concerns expressed by some regional bank presidents at the Fed. The have criticized the Fed’s bond-buying program, saying it has increased the risk for higher inflation. The Fed has kept its key interest rate at a record low near zero since December 2008. Most private economists believe the Fed will not start raising interest rates until next summer. And some say the Fed won’t increase rates until 2013, based on the slumping economy.

Form of QE3 without adding to the Fed balance sheet. Read here

Exit Strategy

The Fed chairman detailed the “broad consensus” among Fed officials about how the Fed plans to exit its policy stance of a target federal-funds rate between 0% and 0.25% and holding roughly $2.6 trillion of securities. This agreement was unveiled in the minutes of the Fed’s June meeting. The suggested order of an exit from the current ultra-low stance on interest rates is first to cease reinvesting principal on bonds the Fed holds. After that, policy makers would either simultaneously or soon after change the forward guidance on the federal-funds rate, followed by raising the target for the federal-funds rate, and then selling agency securities after the first rate increase.

Bernanke defended the Fed’s controversial second round of asset purchases, or QE2, saying that it lowered long-term interest rates and boosted employment.  Bernanke said Fed officials still believed the unemployment rate would decline to a range of 8.6% to 8.9% by the fourth quarter. The jobless rate has moved up to 9.2% in June from 8.8% in March.

The strength of consumer spending will be a key determinant of the pace of the recovery in coming quarters, Bernanke said. Bernanke urged lawmakers not to give up on a more historic $4 billion deficit deal involving entitlements. “I, like many other people who watch budget developments, have been very excited by the idea that a very big program might be feasible and that we might do something that would stabilize our debt over the next decade. That would be a tremendous accomplishment,” Bernanke said. Bernanke pushed Congress to increase the debt ceiling, saying failure to act would spark a “major crisis” and roil the global economy. He said that the U.S. economy would certainly shed more jobs if the debt ceiling is not increased.

Gold & Silver

Gold surged to a record of $1,588.9 an ounce Wednesday as the possibility of more Federal Reserve stimulus coupled with Europe’s deepening debt crisis gave bullion its longest winning streak in five years. Fears that the euro zone debt crisis is spreading and uncertainty over frantic U.S. talks to raise its debt limit also underpinned precious metals. The yellow metal additionally hit all-time highs when priced in euro and sterling. Gold benefits from additional U.S. monetary easing because such a move would likely weaken the dollar and stir inflation down the road. The worst thing for gold would be to have the economy doing well enough that the Federal Reserve starts to normalize monetary policy, or conditions in the European Community begin to settle down.

Gold is set for an eighth consecutive day of gains, something it has not achieved since mid-October 2006, when it rose for nine days in a row. It has gained around 12 percent so far this year and more than doubled in price in the last four years. ”Gold will keep rising for the next five years, even if it has some crests and troughs,” said Michael Widmer, an analyst at Bank of America Merrill Lynch. “Those holding gold should hold onto it, while others should probably get their hands on it as it is going to be on an upward trend. “The sovereign debt crisis is helping the gold prices rise, but even if it is addressed in the short-term, the developed countries are in so much debt that it will continue to drive gold up for the next 10 years.” European Union leaders are expected to hold an emergency meeting on Friday after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens’ debts and stop contagion spreading to Italy and Spain.