Bernanke Revealing Statement on Accommodative Monetary Policy
Interest-Rates / Quantitative Easing Jul 22, 2009 - 12:27 AM GMTBy: Brian_Bloom
In my article entitled “Case against Hyperinflation” dated June 30th 2009, I attempted to explain, in very broad brush terms, how the Fed might head hyperinflation off at the pass. It fell short of what Bernanke outlines in his article but, thankfully, not so short as to be an embarrassment to me J. Clearly, Bernanke believes he is on top of what he is doing. From a different perspective it might be a serious mistake to predicate one’s investment strategies on the base assumption that Bernanke is an intellectual hunchback who doesn’t understand what he is about.
I think the time has come for me to become more introspective. Frankly, I think we are entering a period where the little guy with a relatively high net worth will be hard pressed to maintain that net worth and where “income” will be the core challenge facing most investors who are reaching retirement age and/or who are unemployed. It seems to me that in an environment where frustration levels may well be rising I will no longer able to add any value to the economic debate. Unemployment continues to rise in Europe and the USA and we may well have passed the point of no return.
The article by Ben Bernanke below is very revealing.
The depth and breadth of the global recession has required a highly accommodative monetary policy. Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.
These actions have softened the economic impact of the financial crisis. They have also improved the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages.
My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.
Brian Bloom
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