July 14, 2013

Bernanke on hot seat this week

The Fed chairman will talk about monetary strategy with two congressional committees.

The Miami Herald

Accommodative or restrictive. Which is the best strategy to ensure the American economy continues expanding? Both tactics have been profitable for investors even as they seem to be at odds. And both will be on display in the new week on Capitol Hill and on Wall Street.

Federal Reserve Chairman Ben Bernanke will present the accommodative case to two congressional committees on Wednesday and Thursday in the week ahead. His testimony is part of the twice-a-year economic update Congress demands from the central bank. Republicans on those committees likely will defend the restrictive case.

Bernanke's agency has been pushing money into the economy by keeping its key interest rate near zero and buying billions of dollars of government and mortgage-backed bonds. Meantime, congressional Republicans have been successful in pulling government money out of the economy with the budget sequestration going into effect in March.

Admittedly, the Federal Reserve's efforts to "accommodate" a slow-growing economy are much larger than the federal government's "restrictive" spending cuts, but Bernanke has not been shy about reproaching Congress for holding back.

In the past week, Bernanke reassured investors worried about the Federal Reserve reducing its accommodations. Instead of pulling back, he pledged to continue his strategy "for the foreseeable future." That helped push stock indices to new highs.

His accommodations have muted the impact of government spending cuts. So when he chides congressmen in the new week for the policies restricting economic growth, his own strategy has accommodated the restrictive policies he criticizes.

 

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