Analyst expects cautious optimism from Bernanke

Federal Reserve Board Chairman Ben Bernanke waits for the start of a House Budget Committee hearing on Capitol Hill February 9, 2011 in Washington, DC.

TEXT OF STORY

STEVE CHIOTAKIS: A little later this morning, Federal Reserve Chairman Ben Bernanke gives another of his twice-a-year reports to Congress. Bernanke talks to the Senate Banking Committee, which is likely to grill the Fed Chief on what the central bank is doing to kick the economy into higher gear. Much higher gear. It also wants to know how the Fed is reacting to oil prices that have been going up up up in the wake of turmoil in the mideast and north Africa.

Len Blum is with us Westwood Capital. He's managing partner there and he's with us live from New York. Good morning.

LEN BLUM: Good morning Steve. How are you?

CHIOTAKIS: Doing well. Last time he was on Capitol Hill, Bernanke talked about his confidence in this economy and the recovery. But that was before Egypt and that was before these oil prices started going -- really shooting through the stars. I mean, what can he say about those?

BLUM: Right. You know, I think that's right Steve and I think that Bernanke is going to say that you know he's cautiously optimistic about the economy. His comments are going to be tempered and he's going to say that you know his optimism about the economy are tempered by oil prices which are all about political instability in the Middle East. There are two things that investors are really looking for. You know one is the comments that Bernake makes about the economy and the second will be hints that Bernanke gives on the direction of interest rates.

CHIOTAKIS: Is there anything he can really do about it though Len?

BLUM: That Bernanke can?

CHIOTAKIS: The oil prices. Yeah, I mean, can he offset it in one way or another.

BLUM: Well I think that if Bernanke is concerned about rising oil prices that means that the economy will grow slower, but there's a risk of inflation. To offset the economy growing slower, he can continue buying bonds which has the effect of lowering interest rates and stimulating the economy. But if he's very concerned about inflation, he'll be more cautious about buying bonds and lowering interest rates. Net-net, I don't think inflation's much of a risk in this economy and I don't think Bernanke thinks so either just because we have such a worldwide glut of labor capacity and assets.

CHIOTAKIS: And what else does that mean, quickly in just about ten seconds, what else does it mean for you and me?

BLUM: Well, for the consumer, you know the consumers are concerned about the price of gas at the pump. And that along with their concern about unemployment and housing prices continues to put a damper on everything. And consumer spending makes up about 70 percent of gross domestic product in this country it's an important thing.

CHIOTAKIS: And it's going ti have a big effect you're right. Len Blum with from Westwood Capital. We thank you for being with us this morning.

BLUM: Thanks Steve.

About the author

Steve Chiotakis was the host of Marketplace Morning Report until January 2012.

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