Fed chairman Ben Bernanke met the congressionally accredited press today, with cable networks carrying the nearly hour-long statement and Q & A period live. How’d it go?
It depends who was watching.
If the audience, like the press, was mostly people who normally cover or follow the Fed, including the gold buyers and Ron Paul folk, then not much happened.
The main “news” — which wasn’t a surprise — had to do with the Fed’s QEII program. But that news would have become public, anyway, with or without a press conference. (If you want to learn what it was, go here.)
On everything else, Bernanke’s answers were the same answers that he often gives to the same questions from senators and House members.
The dollar, energy prices, unemployment, inflation, and federal budget deficits — Bernanke said nothing new. People who have long been interested in these topics, and in the Fed’s view on them, have also long been free to watch the coverage of regular congressional hearings that star Bernanke.
People who don’t like the Fed’s take on any and all topics still won’t like it. There was no “A-ha, I see now that he’s been right all along, and I’ve been an idiot” moment.
What about people who don’t generally care about the Fed, but who care enough about politics to have been aware of the historic press conference and to have tuned in?
The biggest “news” to this audience likely was Bernanke’s remarks on the nation’s deficits.
Answering a question about Standard & Poor’s deteriorating outlook on the federal debt, Bernanke said that our propensity to spend more than we make is “very serious” — indeed, that it is “the most important economic problem, at least in the longer term, that the U.S. faces.”
He added further that Congress’s recently enacted spending cuts haven’t done anything to solve the bigger problems.
If you’re a “soccer mom” or whatever Beltway consultants call such people these days, and you’ve started to worry about debt and deficits, Bernanke’s comments would make you worry a little bit more.
The second most important piece of “news” that a general audience likely took away was that the Fed doesn’t think it can do much more about regular people’s problems, besides feel their pain.
When asked why the Fed can’t do more about unemployment, Bernanke said that “the trade-offs” between risking higher inflation by conjuring up yet more money in hopes of reducing the unemployment rate “are less attractive.”
If viewers took from that statement that it’s a good idea to look to the White House and Congress, rather than to the Fed, to create a better economic climate, that’s a good thing.
Reporters — or at least one reporter — should have asked a question about the Fed’s regulatory policy.
The Fed is a key regulator of large financial institutions. Why isn’t it using its powers — and the time it has bought with cheap money — to require big banks and investors to mark their home-mortgage holdings down to realistic market levels? This process would allow the housing market to find its floor more quickly so that it can then start to recover.
Further, does Bernanke think that the Comptroller of the Currency’s approach to the “depressed” housing market (Bernanke’s word) is a good idea? The strategy of the comptroller, another key bank regulator, is to ask banks nicely to do what the law requires them to do on foreclosures.
Bernanke could answer these questions from two perspectives.
First, the standpoint of economic recovery. How can the economy grow when we’re still stuck in a foreclosure morass?
Second, the standpoint of financial stability, which the Fed is supposed to keep an eye on. Does coddling the banks when it comes to their foreclosure and mortgage-valuation practices risk incubating a new crisis? This strategy, after all, could encourage investors to believe that they will never suffer the full effects of bank executives’ bad management, thus lulling investors (back) into complacency.
’Till next time . . .
— Nicole Gelinas is a contributing editor of the Manhattan Institute’s City Journal and author of After the Fall, now in paperback.