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Tuesday, September 26, 2023


Bernanke is optimistic — sort of

Federal Reserve Chairman Ben Bernanke held a press conference Wednesday after the first Market Committee meeting opened to the press saying, “The central bank has no real timetable for ending its low interest-rate policies.”

However, Bernanke expressed that the Fed’s second round of quantitative easing strategy, QE2, would end in June. In layman’s terms, the Federal Reserve would cease buying the junk bonds and bad mortgages that cause interest rates to rise.

That the Federal Reserve held a press conference was unprecedented since its previous habit was to send out paper memos.

Rep. Ron Paul, R-Texas, highlighted this in an interview with the MarketWatch Radio Network shortly after the press conference.

“When I listened to what had to be said, I wasn’t too enthralled. I’ve heard it all before,” Paul said. “I found the press conference to be enlightening in the fact that we heard one, and he held one, and that’s a sign that the Fed knows that they have to be a little more responding to the demand for transparency.”

Bernanke’s relationship with the media is likewise guarded, and his jargon filled statements did nothing to hide this fact.

During the press conference, he said the Federal Reserve will “regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.”

That mouthful caused most in the media to suspect he meant a third round of quantitative easing. To put it bluntly, QE3 could pop up any time after QE2 ends in June.

This doesn’t mean that the Fed will repeat itself, because for it to buy bonds and debt, it has to print money, as it did during QE1 and QE2, and this is only a dangerously temporary solution.

QE3 would at best be a sale of more than $1 trillion in accumulated toxic junk, using the money to buy more government securities.

It does little to help the gross amount of printed dollars already circulating. These are the same printed dollars that the Fed injected into the market — the same printed dollars that have led to the currency depreciating in value when compared to the Euro.

But Bernanke is cautiously optimistic — we think. He conceded to the inflation of fuel prices and commodities, which cause consumers to buy less, but pointed out that the unemployment rate should shrink and gross domestic product should rise, helping the economic recovery.

The idea of easing money into the economy, increasing the amount of money flowing around and allowing market manipulators to run free may sound like a solid economic policy to Bernanke, but the optimism is lost in the real world.

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