While Alan Bollard (Governor of RBNZ) gave his predicted no movement in the OCR today, US Fed Chairman Ben Bernanke held the first-ever regularly scheduled news conference in the Fed’s 98-year history.
As an academic for much of his career Bernanke criticised the Fed for their lack of transparency in their communication. One question that was very prevalent was that of the high levels of unemployment – 9.3%. The Fed has forecast that it won’t drop below 5% for up to 6 years. However, Bernanke believes that the Fed has the power to reduce the level of unemployment but doesn’t seem interested in using it. The worry of reducing the unemployment is that it could spark very high inflation. Below is part of the press conference and a PBS Newshour interview with Joe Stiglitz, Columbia University and Nobel prize winner, and Matthew Slaughter, who served on the Council of Economic Advisers under George W. Bush. The main points from the press conference:
– Bernanke defended the programme of quantitative easing, or QE2, to buy $600 billion of government bonds in an effort to spur lending and expand business.
– Short-term interest rates would remain near zero. On the key question of inflation, he acknowledged a rise but one that he said should be temporary.
– One of the very interesting questions that was posed to the chairman was about long-term unemployment. Bernanke rightly pointed out that, today, it’s still the case that about 45% of Americans that are unemployed have been unemployed for 6 months or longer. But there are limits to how much a lot of these unemployment issues can be addressed directly by the Fed.
Stiglitz: The trust of the Fed has never been lower. It’s actually lower than even Congress. I think they understand that the Fed was asleep at the wheel, its failure in regulation. It was largely responsible for allowing the bubble to get as big as it did and then having to deal with the mess. Yes, it did save us from a disaster, but it was a disaster that they helped create.
Well worth a look.