Straight Talk From The Fed
By Maria Bartiromo
A lot of ink has been spilled and hot air emitted over comments Fed Chairman Ben Bernanke made to me and two other guests at the Apr. 29 White House Correspondents Dinner in Washington. His point was that the markets and the media had misread his remarks to Congress the previous week: A more flexible approach to raising interest rates was interpreted as softness. The larger point was that trying to be clearer about the central bank's goals is not always easy. But there is a new openness at the Fed. That was evident when I had a chance to visit with Tim Geithner, president of the influential Federal Reserve Bank of New York.
How worried are you about $70 oil cutting into economic growth?
The world has handled this energy price shock surprisingly well. But...future price moves could cause more damage than they have so far.
How worried should we be about the imbalances created by the twin deficits [budget and trade]?
The imbalances in the world economy -- they are not solely in the U. S. -- are too large and are clearly unsustainable. But...we will be living for the next decade with the shadow caused by these imbalances and also with the risk they present of occasional volatility of asset prices and perhaps periods of slower growth here and elsewhere.
Has real estate really slowed down?
A range of indicators suggest housing is cooling, but...the hard question is assessing the degree to which households might become more cautious in response to the end of the housing boom.... So far we haven't seen much evidence of higher savings or slower spending growth. But that doesn't mean we won't.
What regulation is appropriate for hedge funds?
Hedge funds...help make our markets more liquid, more efficient, better at matching capital to its highest return. But...there is some risk that they could exacerbate a crisis. The most effective way to mitigate this risk is...for major financial institutions to maintain an adequate cushion -- in terms of capital, margins, liquidity -- against a more adverse future and to make sure the infrastructure that supports our markets is robust. Our principal objective [is] to make sure the core is strong enough to withstand financial distress in the hedge fund sector.
Is there another LTCM [the Long-Term Capital Management crisis of 1998] lurking out there?
Even though the core institutions are strong in terms of capital, and risk is now spread more broadly, rapid growth in derivatives and hedge funds creates risk that future financial stress may be harder to manage.
How have things changed inside the Fed post-Greenspan?
This is an institution where the chairman has a big role, so of course there will be change. But as Ben [Bernanke] has said, his basic approach to thinking about monetary policy is very similar to Greenspan's. I suspect that even though the way the meetings are run will change, you will see continuity in policy.
Will the Fed be more transparent?
It's a sensitive question to answer. Ben is a champion of transparency in monetary policy, but he also recognizes that there are limits to what we know about the economic forecast and what that means to monetary policy. And he understands that we can't give the markets more clarity about the forecast or about future policy than we have ourselves.
Sarbanes-Oxley is controversial in the U.S. but even more so overseas. And international companies seem to be increasingly listing in London and Hong Kong as a result of the tight regulation. What is the risk to U.S. capital markets? And is SOX worth the enormous cost for U.S. companies?
It is important to try to preserve the basic benefits of SOX and achieve the broad objectives that motivated it, but with a better ratio of cost to return. We do see some troubling signs...that some people [may be] less willing to raise capital in the U.S. [It's] important to watch this very carefully. Anything that creates a significant risk of making people less willing to raise capital in the U.S. or to invest in the U.S. should be a concern.
Maria Bartiromo is the host of CNBC's Closing Bell