Bernanke’s options to rev up economy are limited

Nancy Marshall-Genzer Jul 21, 2010
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Bernanke’s options to rev up economy are limited

Nancy Marshall-Genzer Jul 21, 2010
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TEXT OF STORY

Bill Radke: When Federal Reserve Chairman Ben Bernanke testifies to Congress today, lawmakers will want to know how he plans to revive the economy. But Marketplace’s Nancy Marshall Genzer reports Bernanke’s options are limited.


Nancy Marshall Genzer: Usually, if the Fed wants to tune-up the economy, it pushes interest rates down. Borrowing becomes cheap. But current interest rates are already near zero.

Catherine Mann is a former Fed economist. She says the Fed has other tools. Take the bully pulpit. Mann says Bernanke can use his congressional testimony to highlight banks’ reluctance to lend money.

Catherine Mann: And the more that the Federal Reserve shines some light on that behavior, the more the financial system starts to say let’s see if we can put ourselves in a better light.

Larry Meyer is a former Fed governor. He agrees that talk is the best Fed tool right now. But he thinks the Fed should talk about when it might nudge interest rates higher.

Larry Meyer: Change the whole conversation. That changes the whole psychology of the markets. That’s a big deal.

If talk doesn’t work, the Fed does have some more radical tools. It could start buying up corporate bonds that have been bundled into investments. But that tool could backfire if the markets see it as an act of desperation.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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