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Bernanke heads to Capitol Hill

David Gura Jul 13, 2011

Bernanke heads to Capitol Hill

David Gura Jul 13, 2011


STEVE CHIOTAKIS: Back here at home, Federal Reserve Chairman Ben Bernanke is testifying right now before the House Financial Services Committee.

One of his regular hearings before Congress about the economy and monetary policy.

BEN BERNANKE: Given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate.

Translation: The Fed is ready to act if the economy gets a lot worse.

Marketplace’s David Gura is with us live now from Washington with the latest.

DAVID GURA: Hey Steve.

CHIOTAKIS: So at this point we’ve got just terrible housing numbers and and really lackluster unemployment numbers. What can teh Fed Do?

GURA: Well, look, even with all that bad news, interest rates are still pretty low. And economists would say that could be helpful, because it would encourage businesses to spend money. One of the ways the Fed has kept interest rates so low, is through a monetary stimulus policy, a bond-buying program, with an inscrutable name, Steve, called quantitative easing.

CHIOTAKIS: Yes. I’ve heard this name. All right, quantitative easing. I still don’t know whether it’s worked. A lot of people don’t. And to be honest I still don’t know completely what it was supposed to do.

GURA: We’ve had two rounds of quantitative easing so far. The last one got the nickname QE2. Let me take another crack at explaining it. The Federal Reserve bought hundreds of millions of dollars worth of Treasury bonds. Basically, IOUs from the federal government that are considered pretty-safe investments. And by buying those bonds, the Fed was theoretically trading them for cash, injecting dollar bills into the economy. It looks like there was some debate among Fed officials last month about whether or not they should do another round of quantitative easing. Another round of bond buying. I should say that, at that meeting, they decided not to. So no QE3 for now.

CHIOTAKIS: No QE3, All right. But that really drives home the point, David, and the importance of the Federal Reserve, right, in the economy.

GURA: That’s right, remember, the Fed has two big mandates — two objectives. One is to keep inflation down. The other mandate, the other objective, is to keep unemployment low. So I expect Chairman Bernanke is going to talk a lot about the job market.

A finance professor at Baldwin-Wallace College, in Ohio, Kevin Jacques, says the Fed plays another important role.

KEVIN JACQUES: The Federal Reserve is the organization inside the U.S. government which is trying to make sure financial markets are operating in a stable fashion.

In other words, it’s the lender of last resort to the financial system. And we certainly saw it really embrace that role during the financial crisis, as it tried to prevent the financial system from collapsing.

CHIOTAKIS: Marketplace’s David Gura in Washington. David thanks.

GURA: Thank you.


STEVE CHIOTAKIS: Here at home, Federal Reserve Chief Ben Bernanke is expected to testify in a few hours before the House Financial Services Committee. It’s one of his regular hearings before Congress. Today, a lot of folks you wouldn’t expect will be listening for what the Fed chair says about the European debt crisis.

Marketplace’s David Gura reports.

DAVID GURA: Last month, a reporter asked Bernanke if U.S. banks could lose money on those bad Greek loans.

BEN BERNANKE: The direct exposures are pretty small, and we’re doing all we can to monitor those exposures.

Fed speak can sometimes be confusing, and you’ll hear some of it today. But Bernanke has tried to be less of an oracle and more professorial. He seems to like explaining macroeconomics, and Bernanke’s embraced new public interest in what the Fed does.

ANN OWEN: Ultimately, right, people want to know about the basic state of the economy, they want to know about inflation and they want to know about unemployment.

That’s Ann Owen, an economics professor at Hamilton College in New York. Bernanke has given the Fed a higher profile. But despite the Fed chairman’s best efforts, Kevin Jacques, a finance professor at Baldwin-Wallace College in Ohio, says…

KEVIN JACQUES: …the complexity of financial markets is such that it is still very, very difficult for people to understand some of what the Fed did and why it chose to do it.

In Washington, I’m David Gura, for Marketplace.

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