Busch: Five Questions for Ben Bernanke
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Over the next two days,Federal Reserve Chairman Ben Bernanke will present his semiannual review of monetary policy to Congress.
All of this is key for understanding the central problem of the US economy: lack of job creation.
Here are my five key questions he needs to answer for the markets.
Number one: Why did the Fed downgrade their assessment of the economy and what sectors are generating to diminished outlook? This stems from their latest report on the economy that slightly reduced their ranges of growth and raised concerns over a double dip recession.
Number two: Why did the Fed say that the recovery in jobswill take longer than expected? We have seen strong growth in non-defense capital goods and this generally leads to good things for jobs. The recent drop in consumer confidence could lead to reduced consumer spending and therefore wipe out the traditional capex link to job growth.
Number three: If there is a double-dip recession, what is the Fed going to do from a monetary policy standpoint to aid growth? The Fed still has arrows in its monetary quiver, but cutting the interest rate on reserves doesn’t seem to have the fire power that will be needed.
Number four: What will the Fed buy if it re-engages in quantitative easing? The Feds QE program compressed CMBS spreads when it bought most of the new issuance and helped stabilize lending for housing. However should the Fed buy more US Treasury securities, they may drive rates down, but they will also drive funds out of the money market sector. The follow up: Is the Fed ready to extend QE out to more risky assets and is this a good idea?
Number five: Why are US firms reluctant to invest and hire when their balance sheets are swollen with cash? Is it lack of sales, lack of revenue, or lack of a clear future for growth? How is the uncertainty over new regulations from health care and financial regulatory reform influencing decision making? How large of a role will the potential increases in taxes reduce company’s confidence for profits and jobs?
Chairman Bernanke is likely to restate the information from the FOMC minutes that were released last week. Therefore, senators need to drill down to the more salient issues related to future actions and why firms are not confident to invest and hire. His answers should provide some clarity for the path forward on what he believes needs to be done to change the current environment.
It’s really quite simple: we need to understand who creates jobs in the United States and what can be done to help them do it.
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Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.
