James Pethokoukis

Bernanke warns Congress

July 21, 2009

IHS Global on Bernanke’s talk-talk:

Bernanke wanted to send the message that Congress needs to prepare its own “exit strategy” from unsustainable budget deficits. His formal remarks made no mention of a possible second stimulus package (under questioning he said that the idea was “premature”), and he said that policymakers should begin planning “now” to restore fiscal balance. He didn’t offer prescriptions on what to do (whether to raise taxes or cut spending), but said that postponing choices would only make them more difficult. He said that agreement on a sustainable fiscal path could lower long-term interest rates and boost confidence – the implication being that lack of agreement would do the opposite.

The case against Ben Bernanke

July 20, 2009

My pal John Tamny doesn’t think the Fed chairman deserves a second term for the following reasons

Looks like the Fed is taking its foot off the gas pedal

July 6, 2009

From Gluskin Sheff economist David Rosenberg:

At the same time, it looks as though the Fed is now in the process of snugging monetary policy. We don’t hear from the inflation-ists that the central bank has actually been allowing its bloated balance sheet to lose some weight in recent weeks and that the growth rate in the once-red-hot monetary aggregates is shrinking and the monetary base is also shrinking. Over the last 13-weeks, the monetary base has contracted at a 23% annual rate (!), M2 growth has softened to a 1.4% annual rate and MZM has slowed to a mere 4.6% annual rate.

Fed Succession Watch: Yellen the Dove

July 1, 2009

For SF Fed president Janet Yellen, it’s deflation first, inflation later:

I’ll put my cards on the table right away. I think the predominant risk is that inflation will be too low, not too high, over the next several years.  …  First of all, this very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales. Core inflation—a measure that excludes volatile food and energy prices—has drifted down below 2 percent. With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify.

The Grilling of Ben Bernanke

June 25, 2009

Ben Bernanke’s testimony to Congress about his involvement in the Bank of America-Merrill Lynch  merger was a lot like an FOMC statement: short and unadorned, yet open to much interpretation. When the Federal Reserve wasn’t repeatedly saying “I don’t remember” or “I don’t recollect,” he was matter-of-factly stating that he didn’t intend to threaten Bank of America CEO Ken Lewis with termination if he didn’t go through with the Merrill deal.

Thoughts on Bernanke, Lewis and Bank of America-Merrill Lynch

June 25, 2009

I sat through most of the Ben Bernanke/BofA hearing before having to duck out to do some CNBC. But these are my takeaways

Issa vs. Bernanke

June 24, 2009

Rep. Darrell Issa of the House Oversight and Government Reform Committee: ”The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the ‘shotgun wedding’ that was the Merrill Lynch acquisition. The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies.”

Today’s Federal Reserve statement

June 24, 2009

Here is your bottom line: The Fed seems to think growth is ready to resume this year. It doesn’t think inflation will be a problem as long as the economy is operating under its growth potential. Rates aren’t going to budge until at least late 2010.

The next Fed chairman will be …

June 23, 2009

Looking for a short list of replacements for Ben Bernanke for Federal Reserve chairman? You can start with Larry Summers, Alan Blinder, Janet Yellen (with a bullet!), Roger Ferguson, Donald Kohn, Robert Rubin (I am going broad here!), Donald Kohn. And how about tossing in the old Greenspan replacement short list: Glenn Hubbard, Martin Feldstein. Kohn was on that one, too. Any more suggestions???

The Fed’s next move …

June 22, 2009

I think Mike Darda of MKM Partners nicely encapsualtes the Fed’s thinking:

With the unemployment rate 3-4 percentage points above what is widely deemed to be neutral, the Fed probably believes the economy is running more than $1 trillionbelow potential. In other words, don’t expect the Fed to start laying the groundwork for tighter monetary policy until a sustained turn in both output and employment is underway. Of course, this will risk an eventual inflation problem, but as long as inflation doesn’t escape the mid-single-digit range, it’s a risk the Fed is probably willing to take (as opposed to a relapse in the credit markets, and a third leg down in the economy, if they tighten too soon).