Although presidential candidate Mitt Romney doesn’t think much of the work of Fed chairman Ben Bernanke, Bernanke’s influence on policy will be felt long after his term ends in January of 2014. Many of the current Fed governors will still be at the central bank after his departure, if he indeed is not reappointed.
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Bernanke says the Fed funds rate will continue to be a policy tool. Any pledge made by the Fed extending over the next two to three years will be believed by investors.
Speculation is that the Fed will extend its low interest rate target through 2015 at the conclusion of the Fed meeting today.
The Federal Open Market Committee will make a statement at 12:30 today and Bernanke will hold a press conference at 2:15.
Officials have talked about how to make their statements and interest-rate guidance more specific. An attempt to do so may have been reflected in the minutes from the July 31 – August 1 meeting which included statements that the Fed pledges an accommodative stance even as the recovery progressed.
The goal of such statements is to bolster investor confidence that interest rates will stay low over the long term.
At the annual meeting in Jackson Hole, WY, Bernanke said that non-traditional policy tools should be used if necessary because the current rate of unemployment is a grave concern.
That rate has been stuck above 8% since February 2009. Not all Fed officials are in favor of continuing the low interest rate environment. They say that interest rate policy should not be based on the calendar but that specific criteria should be used to determine policy.
The forward guidance of the Fed could backfire by indicating that the Fed expects the economy to continue to decline.
What seems to be more effective currently is not just talking about taking action
but actually doing it. The fact is that any new chairman could sway the stance of Fed officials since there are at least three Fed bank presidents who oppose Bernanke’s policies and will have voting power in 2014.
There is concern that the Fed’s easy monetary policy will result in high inflationary pressures down the road. So it appears, much like the new unified approach in Europe, the US Fed may need to be flexible based on how the economic recovery plays out.