The market took this speech as dovish, and expectations for QE3 rose slightly. I, however, don’t particularly find the comments “dovish.” Anyone who knows to watch the average work week component in the monthly jobs data knows that we’re not seeing additional hiring because of expanding economic conditions.
Bernanke, in my opinion, just said out loud what many already know. The labor market is getting better, but it isn’t healed, and it is still very fragile.
For a while we’ve known that Bernanke and the Fed are data dependent, and if the data gets worse, they’ll be more accommodative.
We knew this coming into the speech: If the economic data gets worse, the Fed will be quick to move with more accommodative policy. If the data gets better, the Fed will be much slower to raise rates. That was the reality we all knew before the speech, and I believe that is the reality after the speech.