Bernanke announces Transparency Initiatives for the Fed

Federal Reserve Board Chairman Ben Bernanke spoke Wednesday at the National Press Club about the Fed’s lending programs and balance sheet. Bernanke spoke about the tool kit used by the Federal Reserve to battle the economic crisis the country is facing. He said that the tools the Fed had at its disposal were programs that would promote liquidity for both financial institutions and money market mutual funds. He said that transparency of the system was important, for democratic reasons, but also to make sure people working with the market understand the system, to encourage the most effective market activity. With this in mind, the Chairman announced two initiatives that the Federal Reserve would be undertaking, the first of which was establishing a new website to educate and inform the public on relevant financial issues within the federal government. This website would consolidate all of the information previously provided by the Fed into one easily accessible place, and would provide explanations on all of it. Additionally, the Fed is going to review current publication and disclosure policies to ensure the public has access to information they “have a right to know”.

Concerning the President’s economic stimulus plan, Bernanke said that he cannot talk about specific components and apportionments, because those are up to the administration and legislators. He did say, however, that there were two necessary parts to recovery: financial stimulus to get the economy moving, and a stabilization of the financial systems. Several times he emphasized the importance of these two components, saying that the other programs will not work without these two pillars. The efforts to get the economy moving again will also specifically help small business, said Bernanke. He went on to say that the country should maintain a level of inflation that finds a balance between maximum employment and price stability over time. He saw very little risk of “unacceptably high” inflation in the short term.

By Michael Ruhl, University of New Mexico – Talk Radio News Service

Barney Frank: "We need to re-establish the credit system"

by Michael Ruhl, University of New Mexico and staff-Talk Radio News Service,

At a press conference House Financial Services Committee Chairman Barney Frank (D-Mass.) spoke on what the federal government is doing to deal with the economic crisis. Frank said that it is likely that a federal entity will be empowered to regulate systemic risk, and that this entity will very likely be the Federal Reserve. He said that the powers given to the Federal Reserve will be newly created powers of the federal government, and will not be taking powers from other organs of the federal government. Frank said that a "prohibition" on irresponsible subprime lending would be necessary, because if enough bad loans are made, it is "hard to protect yourself against them". Frank continued that the government wants the institutions "To be safe and sound", but that the goal is for lending to increase. He also said that the House is working closely with the Obama Administration, and that their aim is to coordinate Systemic Risk Regulation with allies in Europe and Asia.

Chairman Frank also spoke of other priorities of the House Financial Services Committee in the coming year, which included refocusing on debt relief and expanding consumer protection. Frank also said that the Federal government will take a more active role in building houses and keeping people in their homes.

When addressing the topic of America borrowing so much money from foreign countries, in particular China, Frank said that he is alright with these lending arrangements, because he doesn't feel it gives those foreign governments undue influence on America. However, Frank said that spending is too high in some areas, particularly in defense spending that the country is engaging in.

Bernanke distinguishes the facts from the fear

The Senate Banking, Housing and Urban Affairs Committee held a full committee hearing on the Federal Reserve’s semiannual monetary policy report to Congress. Sen. Chris Dodd (D-Conn.) presided over the hearing and said that in considering the state of the U.S. economy, it is important to distinguish between fear and facts. Dodd explained that in the country’s markets today, in particular during the turmoil of recent days, far too many actions are being driven by fear, and are ignoring crucial facts. This neglect of the facts, Dodd said, has caused Americans to experience unprecedented hardship and uncertainties, and now more than ever, they need to know when things will start to turn around and when the country will get back on track.

Chairman of the Federal Reserve, Ben Bernanke, explained many of the significant challenges the U.S. economy and financial system have experienced thus far in 2008. Bernanke said that economic activity has advanced at a sluggish pace during the first half of the year, while inflation has remained elevated. Though the Federal Reserve and the Federal Open Market Committee (FOMC) have eased policies to counter weakness in economic growth and expanded some of the special liquidity programs and implemented additional facilities to support the functioning of financial markets and foster financial stability, the economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and other commodities.

Bernanke explained that investors have recently become particularly concerned about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Because of this, the Treasury announced a legislative proposal to bolster their capital, access to liquidity, and regulatory oversight. Healthy economic growth depends on well-functioning markets, thus, Bernanke said, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.

Looking at the economy overall, Bernanke said that it has continued to expand, but at a subdued pace. The unemployment rate has risen to 5-1/2 percent, activity continues to weaken in the housing sector, and the labor market has “softened.” Bernanke explained that inflation has remained high and seems likely to move temporarily higher in the near term, while the price of oil currently stands at about five times its level toward the beginning of this decade. This surge in oil prices has been driven mostly by strong growth in underlying demand and tight supply conditions in global oil markets; the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil. Bernanke also said that the decline in the foreign exchange value of the dollar, along with financial speculation, have added to the increase in oil prices.

Bernanke finished by saying that the possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth. On the other hand, upside risks to the inflation outlook have intensified lately, as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher. Bernanke said that given this high degree of uncertainty, monetary policy makers will need to carefully assess incoming information bearing on the outlook for both inflation and growth.