The snowstorm that slammed Washington, DC a couple of weeks ago brought work in the nation's capitol to screeching halt, including postponing Federal Reserve Chairman Ben Bernanke's anticipated congressional testimony.
Chairman Bernanke gets an opportunity to deliver that testimony today, focusing both on the Fed's plans for monetary policy, and the outlook for withdrawing the extraordinary programs put in place during the financial crisis.
One unintended consequence of delaying the hearing was that Bernanke was denied the opportunity to further signal his plans to begin to normalize the spread between the target federal funds rate and the discount rate. The Fed's announcement a week later that it would raise the discount rate last surprised some market participants.
At least, it surprised those who weren't paying attention. Markets won't make the same mistake today — every word by the Chairman will be duly parsed.
Bernanke's challenge today will be to convince skeptical members of Congress that he has a plan to manage his commitment to growth now and in the near term, while also being able to withdraw liquidity quickly enough to prevent inflation expectations from taking hold. Bernanke will also explain how the Fed will reduce a balance sheet that necessarily exploded during the financial crisis. No question - he has a complicated eighteen months ahead of him.