Fed speaks mumbo jumbo before acting quantitatively

“"There would appear to be a case for further action," he said at a conference sponsored by the Federal Reserve Bank of Boston.

As Bernanke spoke, the government released statistics showing the so-called core inflation rate, which excludes volatile energy and food prices, was unchanged in September and is now running at an annual rate of 0.8% — well below the Fed's informal desired target of 1.5% to 2%. Separately, there was better-than-expected news on last month's retail sales activity as total sales rose 0.6% from the prior month, boosted by higher auto sales.

Bernanke said in his speech that the "preconditions for a pickup in growth next year remain in place," indicating improvements in household finances, solid business investments and a recovery in state and local tax revenues. But the Fed chief also pointed to the troubled housing market and the slow rate of private-sector job growth, which dampens consumer spending and poses risks for the sustainable growth of the whole economy. And while economic growth is expected to be stronger next year, he said, it isn't likely to expand fast enough to bring down the unemployment rate quickly.

Diane Swonk, chief economist at Mesirow Financial in Chicago, said Bernanke's remarks make it clear that quantitative easing by the Fed is "a done deal." But in a note, she said, "the magnitude of what the Fed is willing to buy, in terms of large-scale asset purchases, is still an issue for debate. Our bet is that the Fed could eventually expand its balance sheet by an additional trillion [dollars]."”