A First: Fed Chair PresserPosted: April 27, 2011
I’m watching Bernanke do a presser. Wow. (It’s a live blog … updates and explanations will be provided.) I can’t believe the press sent political reporters to this. What an amazing number of really rotten questions!!!
Some key points from the morning’s congressional testimony.
On Unemployment: We do see some grounds for optimism, including a decline to the unemployment rate, declines in the new unemployment insurance claims and improvements in firms’ reported hiring plans. But, even so, it could take quite a while for unemployment to come down to desired levels at current expected growth rates and, in particular, the FOMC projects unemployment still to be in the range of seven and-a-half to eight percent by the end of 2012. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.
On Inflation: “I want to go back over this whole line of interventions, including today quantitative easing. And there have been a series of criticisms that have been made and negative predictions, and my view is that none of them have come true. And I think it is important for us to — to note that. And — and I know you’ve talked about this. I know you mentioned in your statement some of the points. But we were told, for instance, that it was going to be very inflationary. And I know it is your view as of now, and I think supported by the facts, that inflation is not now a problem, and we do not see inflation, certainly not one caused by any of what’s been done going forward. We were told this was going to be extraordinarily expensive, that it was going to cost a lot of money. I believe the answer is that on many of these things the federal government has made a profit by the — by the intervention.”
On Crude Oil: “The relative price of oil, again, is primarily due to global supply and demand. I think it’s important to note that the United States is consuming less oil today, importing less oil and producing more oil than it did before the crisis. That all the increase in demand from outside the United States, particularly in the emerging markets. And so there’s limited amount of what the Fed can do about oil prices alone. Again though, we want to be very sure that it doesn’t feed into overall inflation. We will make sure that doesn’t happen.”
On the Dollar: If the dollar was no longer reserve currency there would – it would on the margin probably mean that we would have to pay highest interest rates to finance the federal debt, and that would be a negative obviously. On other other hand, we might not suffer some of the capital inflows that contributed to the boom and the bust in the recent crisis. But again, I know there was also a countervailing argument in the Journal this morning as well. And I – I just don’t see at this point that there is a major shift away from the dollar.
On the Consumer: We understand the visibility of gas prices and food prices and we want to be sure that people’s expectations aren’t adversely affected. I think it’s important to note that, according for example, to the Michigan survey of consumers, that long term inflation expectations have been basically flat. I mean, they haven’t moved, notwithstanding ups and downs in gas prices, for example.
On the U.S. Fiscal Situation: While I understand these are difficult decisions and we certainly can’t solve it all in the current fiscal year, I do think we need to look forward and I know the House Budget Committee and others will be setting up a 10 year proposal. It’s very important and would be very constructive for Congress to lay out a plan that would be credible that will help bring us to sustainability over the next few years. In particular, one rule of thumb is cutting enough that the ratio of the debt to GDP stops rising. Because currently it’s rising relatively quickly. If we could stabilize that, I think that would do a lot to increase confidence in our government and in our fiscal policies.
Obviously, Bernanke needs to drill baby drill to get rid of inflation … so simple!!!
Mr. Bernanke spent much of his academic career arguing that the Fed should be less opaque, and, as chairman, he has put his ideas into action. Now it’s time for those of us in the media to hold up our end of bargain. In the spirit of democratic accountability, we should ask hard questions — and we shouldn’t let him get away with the evasions and half-answers that members of Congress too often allow Fed chairmen during their appearances on Capitol Hill.
One question more than any than other is crying out for an answer: Why has Mr. Bernanke decided to accept widespread unemployment for years on end, even though he believes he has the power to reduce it?
Here’s Paul Krugman’s take on the presser: Bernanke Wimps Out. He’s got the same questions I do about the inflation v. unemployment . (See my comments in the thread below.)
So Bernanke did get asked why, given low inflation and high unemployment, the Fed isn’t doing more. And his answer was disheartening.
As far as I can tell, his analytical framework isn’t too different from mine. The inflation rate to worry about is some underlying, inertial rate rather than the headline rate; the Fed likes the core personal consumer expenditures deflator; and this rate has actually been running below target, indicating that inflation isn’t a concern …