Bernanke’s Speech Should Help to Clarify the Likely Direction of the Fed

By: Asha_Bangalore

The March employment report included several noteworthy aspects of strength in hiring.  The March 15 FOMC policy statement upgraded the Fed's assessment of the economy from the January evaluation.  At the same time, the housing market remains in a slump, there is severe financial stress at state and local governments, and there is considerable global economic uncertainty.  Chairman Bernanke is scheduled to speak this evening at a financial conference at the Federal Reserve Bank of Atlanta.  .Recent Fed rhetoric suggests that voting and non-voting members hold different opinions.  Chairman Bernanke may not have FOMC members voting in the same direction at the April 26-27 meeting.  In the interim, his speech today should suggest where he stands.  These are the latest comments of voting and non-voting members of the FOMC. 

Recent comments of voting members:

President Dudley of the New York Fed, April 1, 2011:  "We will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established." "Even if we generate growth of 300,000 jobs per month, we would still likely have considerable slack in the labor market at the end of 2012."  "Yet, we must not be overly optimistic about the growth outlook. The coast is not completely clear-the healing process in the aftermath of the crisis takes time and there are still several areas of vulnerability and weakness. In particular, housing activity remains unusually weak and home prices have begun to soften again in many parts of the country. State and local government finances remain under stress, and this is likely to lead to further spending cuts, tax increases, or job losses in this sector that will offset at least a part of the federal fiscal stimulus."  "To sum up, economic conditions have improved in the past year. Yet, the recovery is still tenuous. And, we are still far from the mark with regard to the Fed's dual mandate. In particular, the unemployment rate is much too high."

President Fisher of the Dallas Fed, April 1, 2011: "We reliquified this economy. In my opinion, we may have done a little bit too much." "It depends on economic conditions. We have to monitor economic conditions.". "I will be at the front of those who advocate normalizing monetary policy."

President Kocherlakota of the Minneapolis Fed, March 31, 2011: The Federal Reserve could raise rates by the end of 2011.  President Narayana Kocherlakota indicated the Fed could raise benchmark borrowing costs by three-quarters of a percentage point by the end of the year, according to the Wall Street Journal. 

President Plosser of the Philadelphia, April 1, 2011 : "Raising interest rates by the end of 2011 should be on the table depending on how the economy improves over the next few months."  "In my mind it is definitely on the table, but it will depend in my view how things play out over the next few months."  "If inflation picks up and the economy continues to grow above trend, and inflation begins to pick up and expectations look like they're edging up, it will be appropriate in my view that we take appropriate policy responses to that."

Recent Comments of Non-voting members:

President Bullard of St.Louis Fed, March 30, 2011: He is of the opinion that the Fed should commence reversing the $600 billion asset purchase program and trim the plan by $100 billion.  He also noted that "if we wait too long we will get a lot of inflation in the United States and the world." 

President Lacker of Richmond Fed, April 1, 2011:  "It wouldn't surprise me if we needed to act before the end of the year."

President Lockhart of the Atlanta Fed, April 4, 2011:  "We're likely to continue to see a moderate pace of inflation."

President Hoenig of Kansas City Fed, March 30, 2011: "With the United States and many world economies experiencing ... growth and with the U.S. financial crisis over, I would expect to see a change in policy in which stimulus put in place at the height of the crisis would be throttled back."

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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