Reading the Bernanke Tea Leaves
Posted by Michael A. Kamperman on August 26, 2011
The markets may be initially disappointed but Bernanke sent the signal the Fed is prepared to take significant additional action. He announced that the September meeting has been changed from a one day meeting to a two day meeting and that all options will be on the table. He didn’t change the schedule to allow more time for tea and crumpets. He also kept the decks clear for the President’s speech on September 7. Momentum is growing for the President to finally push for measures to refinance all mortgages that are already guaranteed by the federal government and are current. This could put $100 billion annually into the hands of consumers and would cost next to nothing because these mortgage holders would be less likely to default with lower payments. Look for Bernanke to lead the Fed in September to come back into the market to buy large quantities of mortgage bonds. This would keep the interest rates low for those refinancing their mortgages and would be precisely the type of coordinated policy Bernanke argued Japan should have pursued a decade ago.
Bernanke won’t flinch and he won’t be intimidated by bashers out on the Presidential campaign trail that threaten to treat him ‘ugly.’ In Bernanke’s famous helicopter speech where he criticized the Bank of Japan he called for them to stand up in the face of obstacles and opponents like President Roosevelt did in the 30′s. Bernanke said Roosevelt tried many things, and many didn’t work, but he kept trying and restored confidence that the federal government would stand up and be there when needed. Bernanke plans to stand up. He has no intention of going down in history as the Fed Chairman who stood by and failed to take action when needed.
His speech this morning also called on the White House and the Congress to look for ways to stimulate the economy in the short term and to focus on deficit reduction for the long term. I disagree with any focus on long term deficit reduction, which is code for a combination of raising taxes and cutting entitlements. But if decisions made now take place in the out years they can be changed down the road. What is critical is more stimulus now in whatever form and shape. It is up to President Obama to come forward with workable solutions and not to come forward with plans that can’t pass but can be rolled out as talking points on the campaign trail. This is the President’s last chance to move the needle on economic growth before the election. He better deliver results and not rhetoric, because rhetoric alone won’t save his Presidency. Rhetoric alone will lead to a new President in 2013 whose last name starts with P.
