Sorry, Chairman Bernanke: Press Conferences Don't Grow the US Economy

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Commodities, Public Policy

Fed Chairman Ben Bernanke went where no Fed chairman has gone before in front of a podium to take questions (and hopefully answer them) from a bunch of journalists. Fed Chairman Bernanke’s first-ever press conference, following an FOMC meeting with a number of policymakers, was designed to let the people know what the Fed’s been up to with the latest round of quantitative easing, and whether their efforts in keeping interest rates low will continue on the path they’ve been on. A series of questions for Bernanke from the blogosphere had been compiled before the announcement. (Tyler Durden, over at Zero Hedge, went so far as asking Bernanke 20 questions.) The most important questions from us, as far as metal buyers are concerned, might center on rising commodities prices/inflation, the value of the dollar, unemployment and interest rates.  So — did he answer them?

As far as the unemployment front goes, Bernanke said he expects the rate to be from 8.4 to 8.7 percent by the fourth quarter of this year, and somewhere in the range of 6.8 to 7.2 percent by the fourth quarter of 2013. He cited Middle East unrest as the main driver of the oil price, which is in turn, he said, the only major commodity driving the Fed’s inflation forecast — the statement from the FOMC addressed the current inflation environment as being “transitory. A big concern is that this may be a troublesome underestimate, and that the continued buying up of treasuries will contribute to yet another series of bubbles ones that could permanently cripple the US economy. As it stands, QE2 will continue through June, and federal interest rates will remain between zero and 0.25 percent. (For a sense of the forecast changes in GDP and inflation, see this FOMC table.)

Despite the Fed’s best efforts for transparency culminating in Bernanke’s press conference, their policies still seem a bit naïve and unrealistic. A conundrum appears to be rearing its ugly head lately: either keep interest rates as low as possible, which has been the Fed’s M.O. lately, in order to stimulate economic growth by encouraging businesses to borrow; or begin raising them in order to combat the sneaky but very real threat of rising inflation. The latter approach has been supported by several Regional Fed presidents, including Charles Plosser of the Philadelphia Fed. The paradox comes into view when economic health is considered namely, whose economic health is more important? The health of small businesses and medium-sized corporations? Or the health of federal (not to mention state) governments?

The Economist reported recently that many states are much more deeply underwater than anyone thought as a result of the public pension money they owe. The US government’s budget and trade deficits, already sky-high, are in danger of getting higher. (The Fed has its own load to worry about, in the form of a $2.69 trillion balance sheet, according to BusinessWeek.) But the Fed can say that none of the above is their primary responsibility, and that raises the troublesome issue of accountability. The Fed is having trouble adhering to its own dual mandate of maximum employment and price control; indeed, Bernanke basically said that the Fed’s monetary policy will not be able to help long-term unemployment. The consensus that printing money will not solve our problems has long been in place. Accountability in Washington hardly even surfaces, and even when bureaucrats try their best, US businesses and employees are the ones still suffering to stay at the cutting edge of this global marketplace. Unless something is done, that edge will continue getting duller and duller.

–Taras Berezowsky

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