JEREMY HOBSON: Now let’s get to the Fed Chairman’s Q&A session with reporters today at the National Press Club.
Diane Swonk is chief economist at Mesirow Financial and she’s with us live from Chicago as she is every Thursday. Good morning, Diane.
DIANE SWONK: Good morning.
HOBSON: Ben Bernanke typically doesn’t talk to reporters. Why is he doing this today?
SWONK: The Fed initiated a huge communications effort to improve their communication late last year. And clarify both the financial markets and the public exactly what they were doing. So this is just an off shoot of that effort to be more transparent and communicate better.
HOBSON: All right, well what would you ask him if you were there today?
SWONK: The first question I’d ask is, “What’s next? What is the Fed going to do when they finish their large scale asset program in June?” Will they let their balance sheet just naturally shrink? Will they keep it at an elevated level? Or will they expand it even further?
HOBSON: So that’s the question is whether the Fed is going to continue these big economic stimulus efforts. Now there was news this morning that productivity rose last year by the highest amount in eight years, which means that companies are continuing to squeeze more out of the workers they already have instead of hiring new ones. Given that the Fed’s mandate includes keeping employment as high as possible, how does this morning’s new figure into Mr. Bernanke’s calculations?
SWONK: Well this is exactly the response to higher commodity prices by firms out there. Firms that have been unable to push through price increases as commodity prices have soared because cash-strapped consumers have rebuilt. In fact retail sales today are coming out much lower than expected in January. And so what we’re seeing is that companies, figuring that they’re not going to make enough money, they can’t push through those price increases, are getting more out of their existing workers. Productivity growth is a direct response to higher commodity prices. It’s the only way to preserve margins, if you can’t push price increases through.
HOBSON: Diane Swonk, chief economist at Mesirow Financial, thanks so much.
SWONK: Thank you.
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