About 20 minutes into the Q&A session, Bernanke admitted that they have a range of possibilities for more easing including more QE, using the discount window and cutting the interest rate on excess reserves. Their challenge right now is figuring out whether the "loss of momentum in the economy is enduring." However as the evidence shows, there is "frustratingly slow" progress on joblessness and a modest risk of deflation. This means that while August is out, QE3 is still an option for September. When the dust settled, investors realized that nothing Bernanke said today removed the risk of additional stimulus and for the currency market this means there is no justification for a dollar rally. If anything, Bernanke's concerns about deflation should tell us that the central bank remains in easing mode. FOMC member Pianalto spoke after Bernanke testimony and she confirmed that the economy needs "highly accommodative monetary policy."
Bernanke's noncommittal comments on QE3 are consistent with the central bank's strategy of biding their time until there is unambiguous evidence that another round of asset purchases is necessary. Two more months of job growth less than 100k and another month of negative retail sales could do the trick.
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