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.