Curious Capitalist

Bernanke to Speak: 3 Big Questions We Hope the Fed Chief Will Answer

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In an age of unconventional monetary policy, Fed whispering is an increasingly common art – this afternoon, all eyes will be on Ben Bernanke as he issues guidance on the Federal Reserve policies over the next few months. This particular press conference will be closely scrutinized, as we’re at a possible turning point with monetary policy. Bernanke and the rest of the Fed governors have been watching the US economy pick up in recent months, which should mean they are more likely to start scaling back their bond and asset buying programs, which have been pumping an unprecedented $85 billion into the economy over the last several months. Yet, even though the US is doing better than most of the rich world, the economy doesn’t have the escape velocity that the Fed was hoping for as they begin pulling back from their “quantitative easing program.”

Of course, as Bernanke himself has been at pains to point out, “tapering” off asset buying isn’t the same as raising interest rates – while we’re likely to see the former, we probably won’t see the latter until several more months of data (including GDP figures, unemployment numbers, and consumer sentiment) are in.

I’ll be on CNN today at 2:30 with analysis of Bernanke’s press conference, and my colleague Christopher Matthews will add his own commentary on Time.com as well. In the meantime, here are the big questions we’ll be looking to answer on the Fed’s decision this afternoon.

  1. Have risks of QE begun to outweigh the rewards? The recent popping of the emerging market bubble and the fall in the Nikkei, are, to many, one of the fallouts from years of easy money. The Fed has said it’s worried about creating bubbles in the global economy – we’ll see if Bernanke comments on that today.
  2. Will the Fed taper, or tighten? Reducing the scale of those $85 billion a month buys is likely – but a rise in interest rates probably isn’t yet. Nonetheless, mortgage rates have already begun rising off the back of worries that the low interest rate era may be at an end – we’ll hopefully get a sense this afternoon of how Bernanke views the recovery in the housing market.
  3. What about inflation? It’s low – which some people argue means that QE should continue at the current pace. We may get guidance on how worried, or not, the Fed is about inflation. QE hawks have been decrying for years now, although those worries haven’t come to pass. The fact that inflation remains low may be a good argument for keeping the money spigots running a bit longer.

(MORE: Why All Eyes Are on Bernanke This Week)

2 comments
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85b each month. Waiting for the boomerang effect?


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