MacroScope

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.

Bernanke’s term expires in January 2014, and he is widely expected to step down at that point and return to private life. However, he has never said so publicly.

If President Barack Obama decided to nominate him to a third four-year term at the helm of the Fed – and Bernanke agreed to serve – he would require Senate confirmation. If that were the case, he might be expected to go out of his way to disguise irritation with Senate questions designed to get under his skin, hewing to the traditionally circumspect demeanor of a Fed chairman delivering congressional testimony.

After last week’s hefty losses, European stock gained yesterday and are up up again this morning, denoting some optimism about the Wednesday supper summit of EU leaders, which might well be unrealistic.

The European growth measures that we know are in the works – boosting the paid-in capital of the European Investment Bank and plans for ‘project bonds’ underwritten by the EU budget to finance infrastructure – might help a little but will fall a long way short of turning the euro zone economy around, so unless we get something more, on either the growth or the building defences fronts, there’s scope for investor disappointment.

Europe’s international partners continue to demand more dramatic crisis action. After the G8 summit, President Obama was out last night with four demands:
- firewalls to protect countries from Greek contagion (are the ESM and IMF funds now viewed as insufficient?),
- recapitalization of banks that need it (Spain to the fore here presumably),
- A growth strategy to run alongside tight fiscal measures (easier said than done),
- easy monetary policy to help the likes of Italy and Spain keep cutting debt (the ECB thinks its 1 percent rate is very loose and is unlikely to cut soon with inflation above target and will only flood the system with more liquidity in utter extremis)