Ben Bernanke's turn in the spotlight this afternoon should make for an interesting news event, even if actual news is a bit much to hope for. Fed chairmen don't like to ad lib, since that can send investors skittering this way and that. Still, reporters will no doubt pepper him with questions, since even non-answers can be instructive. Here are five questions they should ask:
1. What is the Fed's plan for reducing unemployment? In focusing on inflation, the central bank has made a conscious decision to accept higher jobless rates. As the NYT's David Leonhardt notes:
The Fed's own forecasts suggest that the unemployment rate won't fall below 5 percent for perhaps another five or six years. Mr. Bernanke believes the Fed "retains considerable power" to reduce unemployment faster, despite the fact that its benchmark interest rate is zero, as he's said before. Yet he has been hesitant to use that power....
So the Fed's decision to permit high unemployment for an extended period rests on his shoulders.Right. As Bernanke himself maintains, the nation's biggest current economic concern isn't the price of gas, but the millions of Americans who remain unemployed. Let's hear how the Fed plans to address it.
2. Are you worried that quantitative easing is reducing people's purchasing power by devaluing the dollar? Although core inflation remains low, Fed critics contend that the central bank's policy of flooding the economy with money by purchasing Treasury bonds and mortgage securities is hurting the greenback.
That in turn has left many to wonder if the Fed is deliberately depreciating the dollar to, among other things, boost U.S. exports. Bernanke should say directly if the Fed wants to weaken the dollar and, if so, explain why that's good for the economy. He also should make clear that the Fed plans to end QE in June, as planned; outline the expected impact of halting the program; and discuss under what conditions the central bank might bring it back.
3. Similarly, are you concerned that maintaining near-zero interest rates penalizes savers? The Fed's monetary policy may have benefited the stock market and big corporations, but it punishes millions of retirees and other Americans whose financial welfare depends on a healthy rate of return on their savings. Bernanke should say if he is factoring that into his decision-making.
4. How confident are you that the U.S. banking system is safe? The Dodd-Frank Act gives the Fed a key role in regulating banks and included it as part of a council of federal regulators charged with identifying the kind of "systemic risks" that led to the housing bubble.
Despite these changes, the same banks that helped cause the financial crisis are getting bigger, while key parts of Dodd-Frank have yet to be implemented. As a major regulator, Bernanke should say whether he is satisfied with the pace of reform or whether he thinks the financial system remains at risk.
5. What additional steps is the Fed willing to take to improve the economy? Fed critics say that persistent unemployment, stagnant wages and weak economic growth reflect a failure of current monetary policy. Alternatively, it could suggest that the central bank should administer even stronger medicine by, for example, pledging to hold short-term interest rates down indefinitely.
Bernanke should outline what other measures the Fed is considering. He has resisted potentially politicizing Fed actions by speaking directly about fiscal matters. But it's high time the Chairman speak more openly about what he sees as the limits of monetary policy and what that implies about what Congress must do to boost the economy.
Thumbnail from Flickr user Medill DC
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