Take aways

My analysis Monday morning:

Bernanke is in a sticky situation because he is faced with lower growth expectations as well as elevated inflation.  The commentary I am paying attention to is whether he believes these trends are temporary or permanent.  If he emphasizes the "transitory" nature of inflation, the FOMC will be more inclined to increase quantitative easing, although I don't think they can say QE outright given the opposition from politicians like Rick Perry.  The most likely alternative in my opinion is extending the duration of their portfolio by selling short dated bonds and buying long dated bonds.  

Today Bernanke emphasized inflation is below the FOMC's target rate of 2% and will remain at these depressed levels as commodity prices have eased.  This commentary is crucial because it opens the door to additional monetary easing, although I doubt it will come in the form of QE3.  He also said the FOMC will consider a range of tools which means they are not out of options.  He may not have mentioned Operation Twist today, but he definitely laid the groundwork for it when the Fed meets September 20th.  Increased expectations for further easing may be the reason gold extended its oversold bounce to close up 3.5%.  Also no surprise the Euro is in the early stage of a major break out higher as USD breaks major support levels.