Federal Reserve keeps stimulus options open

Heidi Moore Jul 13, 2011

Federal Reserve keeps stimulus options open

Heidi Moore Jul 13, 2011

Kai Ryssdal: Let’s take a minute as we get started, to think about the top level cast of characters who get to help run the American economy. You’ve got the president and the executive branch. You’ve got Congress and the power of the purse. You’ve got the courts, in certain instances.

And you’ve got a bald guy with a beard. Given the current state of political debate in Washington, and the slow pace of the courts, Ben Bernanke — the chairman of the Fed — is the person who can actually do something about what’s happening — or not happening — to get the economy better.

The Fed’s been pulling back of late, as you might know, but in Congressional testimony today, Bernanke said if things get worse, or, even, don’t get better, he could intervene again. The markets, of course, cheered. But should the rest of us?

Our New York bureau chief Heidi Moore reports.

Heidi Moore: Just when Ben Bernanke thought he was out of the stimulus business, the economy may pull him back in.

In June, the Fed chairman wrapped up an eight-month buying spree of Treasury bonds to keep interest rates low. The markets cheered that intervention, but the economy barely budged.

So today, Bernanke told Congress that if the economy gets worse, then the Federal Reserve maybe, sort of, possibly, potentially could consider another stimulus.

But wait. Do you hear that empty click?

Ward McCarthy: The Fed is running out of ammunition.

Ward McCarthy is the chief financial strategist for Jefferies. He noted that the Fed lowered interest rates nearly to zero, lent money cheaply to banks and bought a lot of mortgages.

In the future, Bernanke’s options include prodding banks to lend by paying them less to keep their money at the Fed. But will that work? Peter Boockvar, an equity strategist with Miller Tabak, is skeptical.

Peter Boockvar: Interest rates are ridiculously low to begin with.

The benefits are hard to predict. The drawbacks are obvious. The Fed’s stimulus made life more expensive for the rest of us, says Quincy Krosby. She’s a market strategist for Prudential.

Quincy Krosby: It raised the prices for American citizens for the price of oil, at the pump, for heating our homes and it also raised the price of food. That was the collateral damage.

In Congress today, Bernanke said he believes inflation will pass and that the economy will recover. That would put a “going out of business” sign on the stimulus.

In New York, I’m Heidi Moore for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.