MacroScope

I asked Fed Chairman Ben Bernanke during his quarterly press conference this week if the central bank had its own estimate for the implicit subsidy that banks considered too big to fail receive in the form of cheaper borrowing. Senator Elizabeth Warren had confronted him at a recent hearing with a Bloomberg estimate of $83 billion which itself was derived from an IMF study. At the time, he dismissed her concern: “That’s one study Senator, you don’t know if that’s an accurate number.”

At the press briefing, Bernanke said the Fed does not have its own figures for Wall Street’s too-big-to-fail subsidy, in part because there were too many factors that made it difficult to calculate.

However, this time around, he seemed more sympathetic to Warren’s concerns than he had at the Senate Banking Committee hearing.

I certainly never meant to say to Senator Warren – and I share her concern about too big to fail, I think it’s a major issue – I never meant to imply that the problem was solved and gone. It is not solved and gone; it’s still here, but there’s a lot of work in train.

We’re putting in the Basel capital standards. We’re putting in the orderly liquidation authority from Dodd-Frank. We’re working with our international partners. And I hope that we’ll make progress against too big to fail, because I agree with her 100 percent that it’s a real problem and needs to be addressed if at all possible.

It’s had a good run, and will remain in use for the purposes of alerting reporters that “Treasury is in the (press) room.” But when it comes to the Federal Reserve’s monetary policy decisions, which are also released out of Treasury, the central bank is ditching the old ringer.

Until the last FOMC decision, reporters would be guided by a 10 second countdown followed by a loud clinging of the bell pictured above. Now, news agencies will report the news at the set time of 2 pm – so there’s no wiggle room in the hyper competitive world of microsecond timings that give robot-traders an edge.

Given that this is how most other official economic releases are disseminated, the shift makes a lot of sense. Still, there was just something about that bell.

It’s not difficult to see why quantitative easing was not high on the Federal Reserve’s list of priorities in 1982. The term was nowhere to be found in the handy booklet pictured above, which I found while perusing the shelves of Reuters’ two-desk bureau inside the U.S. Treasury. Paul Volcker’s Fed was still battling runaway inflation, so policy options designed for a zero interest rate environment were nowhere near the horizon.

More interesting, perhaps, is what the pamphlet’s brief introduction says about a technology that is now so commonplace it is overlooked — and about the social milieu of central bankers.

These days, it would be quite reasonable for an expert in ‘EFTS’ to inform a co-worker that he used a ‘debit card’ at an ‘ATM’ to get money to buy a tennis racket.

Is the pickup in U.S. jobs growth over before it even started? That’s the conclusion you might reach if you checked out the latest Texas employment update from the Dallas Fed , which shows the Lone Star state added only 4,000 jobs in January.Texas, as boosters like Dallas Fed President Richard Fisher never tire of pointing out, has been an enormous engine of job growth for the United States since the end of the Great Recession.

The state added 335,000 jobs last year. For it to generate a paltry 4,000 jobs in January – well, that sounds like bad news.

Dallas Fed chief regional economist Pia Orrenius isn’t a bit worried. Last year’s data also came in too low initially – what turned out to be 3.1 percent growth was originally estimated at 2.5 percent growth. “Nothing happened to suggest we suddenly slowed in January,” she said in a phone interview. The regional Fed’s manufacturing survey was strong, and the oil rig count was up, she said. Both November and December’s initial jobs figures were revised up sharply, she said. As for January, “We expect this will be revised up as well.” Stay tuned for those revisions then. The state’s run as a driver of U.S. employment growth  may not be over yet.

Watching Ben Bernanke testify before Congress in recent years, it’s hard to shake the feeling that this is a Fed Chairman who has been largely abandoned by his own party. Hearing after hearing, Bernanke receives steady support and praise Democrats for his efforts to stimulate a fragile economic recovery – and takes constant heat from Republicans for what they perceive as the possible dangers of low interest rates.

Many people forget Bernanke was first nominated to his current role by a conservative Republican president, George W. Bush. Bush, though he was reappointed to a second term by President Barack Obama. Bush first named Bernanke to the Fed’s board in 2002, then brought him to the White House to lead his Council of Economic Advisors.

In his recent biannual testimony on monetary policy, Bernanke had quite the exchange with Bob Corker, a Republican Senator from Tennessee. The tone of his question was immediately confrontational:

That’s not a typo in the headline. In a recent speech that took some mental gymnastics to absorb, Federal Reserve Chairman Bernanke countered critics of his low rates policy by arguing that a loose monetary policy is the best way to ensure rates can rise to more normal levels.

Why? Because interest rates will naturally move higher once stronger economic growth leads to higher rates of return on investment, Bernanke said. Here’s his argument:

One might argue that the right response to these risks is to tighten monetary policy, raising long-term interest rates with the aim of forestalling any undesirable buildup of risk. I hope my discussion this evening has convinced you that, at least in economic circumstances of the sort that prevail today, such an approach could be quite costly and might well be counterproductive from the standpoint of promoting financial stability. Long-term interest rates in the major industrial countries are low for good reason: Inflation is low and stable and, given expectations of weak growth, expected real short rates are low. Premature rate increases would carry a high risk of short-circuiting the recovery, possibly leading–ironically enough–to an even longer period of low long-term rates. Only a strong economy can deliver persistently high real returns to savers and investors, and the economies of the major industrial countries are still in the recovery phase.

Remember those green shoots? Ever since Fed Chairman Ben Bernanke uttered those words in response to the first signs of recovery from the Great Recession in 2009, many forecasters – including Fed officials – have consistently overestimated the economy’s strength.

Some economists believe 2013 could finally be a break-out year. With the fiscal cliff now in the rear-view mirror and the euro zone crisis apparently stabilized, some see the prospect that growth could actually exceed expectations for the first time in a long while.

Dennis Lockhart, president of the Atlanta Fed, said this week he sees a chance the economy might actually surpass his 2013 growth forecast range of 2-2.5 percent.

Federal Reserve Chairman Ben Bernanke may be keeping quiet about his future plans, but he sure doesn’t sound like someone planning to seek Senate support for a third term at the helm of the U.S. central bank.

In unapologetic and sometimes testy exchanges before the Senate Banking Committee on Tuesday, the Fed chief defended his record and dismissed one Senate critic in unusually blunt terms.

“None of the things you said are accurate,” Bernanke told Bob Corker, a Republican senator from Tennessee, who accused the Fed of deliberately starting a global currency war and of printing money to bail out big Wall Street banks.

Earlier this month, Fed Governor Jeremy Stein made waves that are still rippling with a speech on the risks of credit bubbles. The policymaker said that the U.S. central bank could use interest rates, as opposed to the more conventional tool of regulation, to cool overheating in junk bonds and other markets.

With worries growing that the Fed’s easy-money policies are inflating dangerous bubbles in financial markets, the speech could portend an earlier-than-expected reversal of quantitative easing or raising of ultra low rates. But don’t take my word for it. Here’s what St. Louis Fed President James Bullard had to say about Stein’s speech, when he visited New York University last week:

“My main takeaway from the speech … was that he pushed back against the Bernanke doctrine. The Bernanke doctrine has been that we’re going to use monetary policy to deal with normal macroeconomic concerns, and then we’ll use regulatory policies to try to contain financial excess. And Jeremy Stein’s speech said, in effect, I’m not sure we’re always going to be able to take care of financial excess with the regulatory policy. And in a key line he said, raising interest rates is a way to get into all the corners of the financial markets that you might not be able to see, or you might not be able to attack with the regulatory approach. So I thought this was interesting. And I would certainly think that everybody should take heed of this. This is an argument that, maybe you should think about using interest rates to fight financial excess a little more than we have in the last few years.”

Financial markets are again on edge about the direction of Fed policy following the surprisingly hawkish minutes of the January meeting released last week, even if most still expect the central bank to keep buying bonds at the current $85 billion monthly pace at least until the end of the year.

Federal Reserve Board Governor Jeremy Stein, an academic economist who joined the central bank last May, surprised Fed-watchers in his latest speech by focusing entirely on the risks of recent monetary stimulus and saying very little about its benefits. In particular, Stein, a corporate finance expert, raised the possibility that a bubble might be forming in the corporate bond markets, which has seen yields fall to record lows and issuance to record highs.

While the speech was riddled with caveats, Wall Street took it as an unusually stern warning about the potential side effects of quantitative easing from Fed’s inner-sanctum, the influential, presidentially-appointed Board of Governors in Washington. Stein argued: