Ten Burning Questions for Ben Bernanke
I generally spend Federal Reserve Chairman Ben Bernanke's post-meeting press conference hoping one of the reporters will ask what for me are the burning questions of the day. Since they never do, and in all likelihood won't later today, I'm going to ask them myself. Here goes.
1. Chairman Bernanke, the Fed's economic projections continue to put long-run full employment at 5 percent to 6 percent. The neutral funds rate -- the rate that will keep the economy growing at its noninflationary potential in perpetuity -- is thought to be about 4 percent. The Federal Open Market Committee has pledged not to raise the funds rate at least until the unemployment rate hits 6.5 percent, and there has been talk of lowering that threshold, perhaps to take the sting out of tapering.
Assuming those parameters are accurate, the funds rate will be 400 basis points below neutral at a time when the economy is approaching full employment. Do you see any risks associated with that strategy? Do you think forward guidance can minimize what are sure to be significant dislocations in financial markets?
2. Economists have been trying to determine whether today's 7.3 percent unemployment rate reflects cyclical or structural forces. The fact that the open market committee hasn't adjusted its long-term outlook for full employment suggests you still believe weak demand is the reason for high unemployment. Is that correct?
3. At your March 20 press conference, you floated the idea of variable quantitative easing, adjusting asset purchases up or down in response to the outlook. In the past, the Fed has been averse to shifting course once it sets out to ease, or tighten, policy, which may explain why it is usually late to the party. Were you serious about variable QE? Or was that a way to temper the taper?
4. (To be asked in the event the Fed announces a tapering of asset purchases at the conclusion of its meeting today.) Less than two months ago, "almost all Committee members agreed that a change in the purchase program was not yet appropriate." Seven weeks later, it is appropriate. What's changed in the interim? Does average job growth of 180,000 a month this year qualify as a "sustained improvement in the labor market" when each month more people drop out of the labor force than find jobs?
5. (To be asked in the event the Fed chooses to continue with its $85-billion-a-month asset-purchase program.) Various Fed studies suggest that the third round of asset purchases has had a negligible effect on long-term interest rates, that the real benefit comes from forward guidance. Why, then, have you decided to stick with the program? Ten-year yields are up 120 basis points since May. Any bang for the buck seems to have dissipated.
6. You came to the Fed as an advocate of inflation targeting. Under your leadership, the Fed finally formalized the implicit 2 percent target, or "goal," as you call it. Now we know that price stability is a necessary, but not sufficient, condition for financial stability. Having steered the economy through the worst financial crisis and recession since the Great Depression, have you changed your view on inflation targeting?
7. What do you see as your most important contribution to the Fed?
8. Would you consider staying on for another term as Fed chairman if asked?
9. Israeli Prime Minister Benjamin Netanyahu is said to be having trouble finding someone to head his central bank. Would you be interested in the post?
10. Who would you like to see replace you as Fed chair? (Just teasing.)
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)