Federal Reserve Chairman Ben Bernanke delivers his Humphrey-Hawkins semi-annual monetary policy report to the House of Representatives. If you want to be the first in the know, join us here at 10:00AM ET/7:00 AM PT as Wall St. Cheat Sheet Assistant Editor Xander Schachtel will provide you with fun, LIVE coverage of Ben Bernanke’s big speech by curating everything you need to know.
Wall St. Cheat Sheet Assistant Editor Xander Schachtel on the beat. If you have questions or comments, feel free to join the conversation in the comments section below.
12:40PM: Conference wraps up as questions end.
12:37PM: Can you tell me how many minorities were funded under the TARP program? Bernanke: I’m not sure we can…
12:30PM: How are non-performing assets weighing on balance sheets? Should we work to sell these things quickly? Bernanke: The area where this is most relevant is in the housing market, we want to do all we can to keep people in their homes, but long delays due to servicing issues, moratoriums, have slowed this. Its true that addressing this problem is an important one.
12:25PM: Rep. John Carney (D-Del.) What kinds of short term cuts will be harmful to the economy? Bernanke: There is already a good bit of fiscal contraction going on, spending now being withdrawn from economy, putting states and municipalities under pressure. I can’t really pick and choose, but I want to be clear that cutting programs or taxes in ways that will reduce aggregate demand is going to slow the economy.
12:20PM: Rep. Jim Renacci (R-Ohio): Have you made any progress in figuring out what the implications of the new finance regulations will be? Bernanke: We are doing are very best to project these numbers, we also need to strike a balance between new regulations and allowing the economy to grow. The Fed is very attentive to the cost-benefit side of these things. Renacci: Do you ever question the efficiency of the current statutes you work with? Bernanke: We’re working to get this done as quickly as possible, currently the statute addresses the main issues, not a perfect bill but okay.
12:12PM: Rep. Gary Peters (D-Michigan): What are your views on a balanced budget amendment? Bernanke: I am very much in favor of a substantial deficit reduction over time. Though its tough to make an amendment like that which will meet everybody’s goals. Peters: Article yesterday talked about parallels between now and the 1930s depression, is this a valid claim? Bernanke: I think that every episode is different, though with current unemployment federal support is still needed today.
12:07PM: Will there be QE3? Bernanke: We have to keep all the options on the table.
12:02PM: Rep. Jim Himes (D-Conn), How did high energy prices hit GDP in the first two quarters? Bernanke: oil increases really hit family budgets through higher gas prices, that was a reason why 2Q consumer spending was really weak…this should rebound in the 2nd half of the year as these prices decrease. Himes: Fiscal tightening was listed in your report as a headwind towards economic progress…does this rebut the idea that severe cuts now are economically positive. Bernanke: I do think you need to be careful about sharp cuts in the near term, though it is difficult not to address the long term problem without spending cuts.
11:55AM: Rep. Bill Huizenga, asks about consumer confidence, you said rise in inflation is transitory…what is going to subside exactly? Bernanke: for inflation, substantial increases in oil prices earlier this year that are coming down will help counter it, also food prices went up due to bad weather, bad crops, now better news will help prices. Huizenga: I met with oil ministers in Iraq and Saudi Arabia, they said they increased production earlier this year, hinted that devaluation of US dollar has driven increases in oil prices. Bernanke: The falling dollar, which has fallen for many reasons, has contributed some to the increases in oil prices, though if that were the only factor, prices in other currencies would be going down, which they are not. Huizenga: I don’t see how we can avoid future inflation with such a devalued currency. Bernanke: There are two separate concepts, domestic buying value, and foreign exchange rate. Keeping inflation low supports the dollar.
11:50AM: Bernanke on housing and small business, banks are reluctant to extend loans, also small businesses are having difficulty getting loans due to tougher credit outlook. Our low interest rates work to offset these issues.
11:42AM: Rep. Gary Ackerman (D-NY), All of us here (committee reps.) ran for office, told our constituents that we would work to create jobs. Jobs not just a concept, people get what it is to have one and not have one, others told people that we would never raise the debt ceiling. If we don’t raise the debt ceiling, how many jobs could we lose? Bernanke: The right analogy for not raising the debt limit is having a credit card spending spree and not paying the bill. The worst outcome for jobs is that at some point we default, and that would create a huge financial calamity, setting job creation back significantly. Ackerman: Is that quantifiable? Bernanke: Something similar to 2008-2009 quarters of negative growth is conceivable. Ackerman: So we’d lose jobs if we don’t raise the debt ceiling? Bernanke: Yeah.
11:36AM: Rep. Gary Miller (R-CA), How can we help the housing market, is it realistic to just kill Freddie and Fannie Mae without any replacement? Is now the time for major reforms to the housing market? Bernanke: Yes. This was the main piece of business not addressed in the federal reforms. I think it would be very helpful, it would increase confidence in mortgage originators. Miller: Lack of clarity is killing the marketplace, should private capital play a stronger role in funding the market for mortgage lending. Bernanke: Most certainly. We could have securitization done by private financials, though it should be noted that Fannie and Freddie were effectively subsidized, so a private system will increase the cost of mortgages.
11:30AM: Rep. Emanuel Cleaver, Can we cut taxes, and spending and have the economy grow? Bernanke: When we make cuts we want to also do thing that make the economy grow, but we also have to watch against cutting too much too quickly. The current recession was caused by the financial crisis, I don’t think this was related to tax policy. Cleaver: If we spent all this money on wars, and entitlements, I’m convinced that all of this plus tax cuts created the debt problem. Is this the time that we need to oversee workforce retraining? Bernanke: I think a big problem is the fact that we have millions of people who have been out of work for long time periods, and insufficiently trained to work with new tech, there are many ways to help people catch up, though I do think its important to help people gain these skills.
11:25AM: Rep. Jeb Hensarling (R-Texas), Unemployment above 8% from 27 consecutive months, other indicators lagging, since stimulus, what I believe is that the economy is not so much suffering from lack of capital, but rather lack of confidence, why didn’t you mention this? Bernanke: I mentioned that equipment and software spending is growing very robustly, though small business confidence has been weak. Hensarling: Having spoken to many Fortune 500 CEOs, small business owners, evidence is overwhelming lack confidence in the economy because of healthcare changes, Dodd-Frank, EPA ‘overkill’ and the national debt…speaking of which…does this administration lack the authority to keep bondholders current? Bernanke: I think there are some operational concerns, though for a while the admin. will do all that it can to pay the debt…
11:20AM: Rep. Ed Perlmutter (D-Colorado), In 1999-2001 we ran a budget surplus, but then we had tax cuts, has the Fed figured out how much revenue these cuts costs us? Bernanke: CBO says it costs several trillion dollars. Perlmutter: Don’t you agree that revenues need to be added to balance the budget? Bernanke: Not going to get into this debate. That’s up to you guys to decide. Perlmutter: I have experience in handling bankruptcy cases (legally), usually we don’t pay all the debt overnight…do you see that being the case with the US debt? Bernanke: I just want to warn against cutting spending too drastically, killing government demand altogether
11:15AM: Rep. Frank Lucas (R-Oklahoma), my constituents don’t want to partake in sorting out a mess they didn’t make…can you tell me what my constituents would expect if some grand understanding of national debt is not achieved? Bernanke: Well…the risk is that interest rates rise as creditors lose confidence in America, deficit will worsen, farm mortgages, capital for oil and natural gas exploration, and consumer loans will get more expensive…economy would weaken across the board…I’m in favor of taking a long-term perspective, addressing this problem in a direct way. Lucas: So its fair to say that if there is no agreement, my people would see interest rates that effect their ability to grow their businesses grow up. Bernanke: Ultimately, yes. Lucas: Then at some point markets will become defensive towards US investment. Bernanke: Yes.
11:10AM: Rep. Al Green asks, is this the opportunity to tell that the bailout, people who said it was not needed, etc, are they correct? Bernanke: I know it seemed unfair to see money going to large institutions, but it was necessary to bailout these people by saving the economy from a complete collapse. The program was successful, we avoided a global meltdown. Its very expensive to stabilize a financial system, Ireland facing this challenge right now…in the US all investments made by TARP and the Fed, it will represent a profit, and a reduction of the deficit. Green: The calls coming into my office were overwhelmingly opposed to the bailout. People forget that we were on the edge of disaster…
11:05AM: Rep. Ed Royce asks Bernanke to speak more about the deficit. Bernanke: “Many Americans think money they put in social security goes into the banks, really younger Americans are paying for older ones’ benefits.” Monetary policy, we learned a lesson from the 1970s. Royce: “What if Congress doesn’t do its part? What if entitlement ramp up continues?” Bernanke: “If Fed refuses to act, higher interest rates could come from it, have negative impact on deficit and economy.” I’m excited by the idea that a big deal could be feasible…
10:58AM: Bernanke: “if we wen’t so far as to default on the debt it would be a major crisis…with shockwaves for the entire global financial system.”
10:53AM: Rep. Ron Paul talking now, says he is skeptical that govt. spending efforts had any impact on recovery…says our CPI metric is misleading, prices have gone up 9% annually in past few years. $5.1 trillion dollars in federal spending didn’t go to consumers, it went to banks, companies, troubled assets, why didn’t we direct the money to the people who need to spend it? Bernanke: “You’re mistaken in saying that the Federal Reserve has spent any money…we have lent money, not spent money…we have turned profits of over $125 billion in the last two years…the reason the Fed was founded is to address financial panics…Paul interrupts…says you “create it out of thin air, how is this not spending? Price of gold is way up, do you care about gold” Bernanke: reason people hold gold is to protect against really bad outcomes. Paul “do you think gold is money?” Bernanke: No. Paul: “why do central banks hold it?” Bernanke: (Laughs) long term tradition.
10:47AM: Rep. Barney Frank, asks about the job picture…do I infer correctly that overly tightening fiscal policy would increase the strength of the economic headwinds…how will budget cuts effect the economy? Bernanke responds, “contradiction between need to maintain recovery and make fiscal spending cuts” not necessarily a contradiction if we look at the long-term picture, we don’t need to cut entitlements today…we need to reform our tax code, “take care that we don’t hamper an already slow recovery.” Frank again, do you agree that the greatest threat to confidence is that we won’t raise the debt limit? Bernanke: I think its a concern, along with European issues, but we need to take a serious attack on that issue.
10:41AM: Bernanke Concludes speech, now will take questions. Rep. Bachus asks about entitlements, budget path, “You have warned that if we don’t get our budget in order, the economy will worsen….[shows chart of entitlements spending showing Medicare and Social Security will balloon our debt in coming years]…long winded question…give us your ideas on how unsustainable budget paths affect your job…Bernanke responds, as graphs illustrate, healthcare costs are rising faster than GDP, even w/in next 10-15 years entitlement payments will consume federal budget. We cannot continue on this path, we cannot lose our rep. with foreign creditors…we need to take important steps to work on these issues.
10:33AM: On QE, “we are no longer expanding our securities holdings,” however, maintaining our holdings of these securities should put downward pressure on interest rates…it is important to note that our program was not government spending, as interest on securities is remitted to US treasury. Monetary policy was not intended to be a “panacea” to economic troubles…our experience to date with QE suggests that the program was successful, had its intended effects. We did not expect QE to significantly impact employment…although gains were made in private payrolls. The Fed remains prepared to respond, “additional policy support” is possible. More QE is an option if the recovery does not pick up.
10:30AM: Borrowing conditions have eased, inflation has picked up this year due to higher prices in oil and commodities…auto prices also went up due to supply shortages. FOMC expects inflation to drop to 2% or lower in coming months. “Judgment of FOMC is that pace of the current recovery will remain moderate, basis for the decision to main a highly accommodative monetary policy.”…conditions will warrant exceptionally low levels of fed. funds rate for a significant period…QE boosted prices of securities and lowered long term treasury yields, inducing private investors to look at other assets.
10:25AM: Bernanke still on economy, job rate will decline, but slowly, 7.8-7.2% by the end of 2012. “Recent data attests to weakness of the labor market,” too many jobs from recession still lost, too many people “long-term unemployment,” off the job for more than six months, Bernanke warns this is very dangerous. “The ongoing weakness in home values is weighing on consumer sentiment,” anticipated pickups in economic growth and job creation should bolster home values in medium run…
10:22AM: Chairman Bachus recognizes Bernanke, who begins to speak, “The US economy has continued to recover but the pace of expansion has been modest…incoming data suggests the pace of recovery remains soft…at the same time unemployment has moved back above 9%”….temporary factors, run-up in prices of energy, gasoline, and food, also Japan earthquake hit auto industry suppliers hard…”Most recent projections reflected assessments that the pace of economic recovery will pick up in coming quarters 2.7-2.9% GDP growth in 2011,” over 3% in 2012.
10:18AM: Rep. William Lacy Clay (D-Missouri) speaks to history of Humphrey-Hawkins Act, mandates of Federal Reserve, requirements for semi-annual report to Congress…”America is still waiting [for jobs help].”
10:15AM: Rep. Ron Paul (R-Texas) speaks, pokes fun at Bernanke, who smiles. Paul, “Its very serious [economy]…these are overwhelming problems…I see this as a failure of planning, the Congress is a big blame, so are special interests and citizens groups wanting handouts…also wars that continue to go on.” Paul continues, “I see the Fed as a problem…we don’t have to be responsible because we can blame it on the Fed…I see these things as a facilitator for special interests…we can’t get away with it any more because we’ve run out of steam.”
10:10AM: Rep. Barney Frank (D-Mass.) speaks, says Bernanke warned of pending economic collapse in 2008. Frank says financial crisis set off worst economy since great depression…criticizes Bachus for his entitlement speech…says Obama has faced one of the most difficult economic environments of any modern President. “We have lost half a million jobs in the past year…because of a failure to differentiate…between long term deficit reduction and forcing state and local governments to fire people.” “I do not think Medicare is a terrible thing…its true that it costs us a lot, almost as much as the Pentagon.” Continues to speak out against the war…lack of bipartisan agreement on austerity reform.
10:07AM: “The money [for entitlements] has run out.” You (Bernanke) have said that if the Fed. entitlement programs are not put on a sustainable path things will come apart, “I fear that we have reached that point. The buck stops with this Congress.”
10:04AM: Rep. Spencer Bachus (R-Alabama) speaks to introduce the hearings. “We have a crisis of confidence in America,” for the first time in a long time people believe they will be better off than their children financially. Commends Bernanke for his work towards helping the economy in his tenure as Fed. chair.
10:01AM: Bernanke enters the room, is seated, hearing begins ‘on the conduct of monetary policy and the state of the economy.’
10:00AM: Ben Bernanke is expected to appear in the coming minutes, to speak before Congress where commentators expect that he will exhort regulators to take action in raising the debt ceiling.