Wall Street and Washington alike are asking
whether Ben Bernanke will stay on in 2014, as the US Federal Reserve
chairman persists in the final year of his term with slack monetary
policy that some see as currying favour at the White House.
The Federal Reserve on Wednesday left interest rates near zero
while continuing to pump an extra 85 billion dollars a month - about
1 trillion dollars at an annual rate - into the 16-trillion-dollar US
economy.
Bernanke's second term as Fed chairman expires January 31, 2014,
and by many measures, the US economy is humming.
Wall Street has enjoyed record corporate profits since 2011,
sending the blue-chip Dow Jones Industrial Average to record highs
this month, and the banking sector passed the Fed's recent "stress
tests."
The once moribund housing market has "strengthened further" by the
Fed's own estimation, and the unemployment rate is down from 10 per
cent to 7.7 per cent in February.
"Yet our monetary policy remains firmly anchored in crisis mode. I
can't quite square that," Howard Ward, chief investment officer at
Gamco Investors Inc, complained to financial broadcaster Bloomberg
Television.
"You have to wonder," Ward said. "If you wanted to be reappointed,
you would be doing everything possible to make the economy as strong
as possible, and (Bernanke) seems to believe this is the way to do
that."
In 2006, Bernanke succeeding the oracle-like Alan Greenspan,
Federal Reserve chairman for a record 18 years under three presidents
from both parties.
Inheriting a stalled housing market, Bernanke soon had to grapple
with an economy that was contracting by the end of 2007 and in
meltdown by late 2008.
The implosion of the housing bubble - now blamed in part on
Greenspan's accommodatingly low interest rates - set off the first
global downturn since World War II.
The Fed under Bernanke slashed its target rate to near zero,
maintaining the unprecedented benchmark interest since December 2008.
Bernanke and his colleagues on the Fed's rate-setting Open Market
Committee further opened the monetary spigots, buying up
mortgage-backed securities, US Treasury notes and other assets to the
tune of more than 1 trillion dollars.
The so-called quantitative easing - in effect, printing money and
shoveling it into the private sector in hopes of spurring investment
- was followed by more bond purchases in 2010-11. A third round was
launched in September, with the Fed now continuing to buy 85 billion
dollars a month in Treasuries and other government-backed bonds.
"These actions should maintain downward pressure on longer-term
interest rates, support mortgage markets and help to make broader
financial conditions more accommodative," the Fed said in Wednesday's
official statement.
The torrent of money has long drawn criticism. In a November 10
open letter to Bernanke, a group of mostly conservative economists
and commentators said the asset purchases were neither necessary nor
advisable and risked "currency debasement and inflation."
Inflation hawks like Ward need only point to the last housing
bubble.
"When things go bad, they can go bad quickly," Ward said.
"We've had five years of super low interest rates. (Bernanke) is
saying it could be 2015, maybe even later, before rates start to
tighten. We've never experienced anything like this. So history would
tell us we have to have some healthy level of skepticism."
Bernanke on Wednesday told reporters that monetary policy is a
"very blunt instrument" to steer the economy or safely defuse a
speculation bubble.
Ward cited the "substantial lag" of monetary policy: "As inflation
expectations start to rise, you can't simply flip a switch and turn
them off quickly. It takes time for that to work."
Only one Fed member, Esther George, shared Ward's concern, citing
her own worries that the extraordinarily loose monetary policies
could fuel investment bubbles and stoke inflation.
Bernanke would need Senate confirmation if reappointed by
President Barack Obama, who is expected to make a decision by
September.
Bernanke gave reporters no details about his "personal plans,"
saying only that he had spoken "a bit" with Obama about the end of
his Fed term.
After taking over from Greenspan, Bernanke said that he had hoped
to "depersonalize to some extent monetary policy" from focus on the
individual Fed chief to a broader recognition of the entire Federal
Reserve staff and board members.
"I don't think that I'm the only person in the world who can
manage the exit" from current monetary policy, he said. " ... There's
no single person who is essential to that."
