Highlights from Ben Bernanke’s Speech

During Q&A, Bernanke noted from a study by the CBO that economic growth would be reduced this year by 1-1/2 percent by sequestration. He sees differences between short run issues and long run issues on fiscal issues. Bernanke would prefer that fiscal solutions not be front loaded. 

Regarding quantitative easing, he sees improvement in labor markets, autos, and housing. 

He indicated that Treasury remittances are not a major issue. 

Bernanke stated that the increase in house prices should benefit other sectors—an effect from quantitative easing. 

The big issue being raised in the House hearing is whether QE has benefits that exceed costs. Bernanke continued with his response before the Senate yesterday that quantitative easing is making a positive contribution to the economy. 

On a side note question on energy production issues, Bernanke noted that energy production has been a bright spot of the economy but also noted that there are conservation issues and that energy is not an area of his expertise—an appropriate response for discussing monetary policy. 

Regarding helping savers, Bernanke said that the best strategy to boost returns is to boost the economy and this means not raising interest rates too quickly. 

On remittance issues, Bernanke did state that the Fed may at times not transfer any profits to the Treasury but remittances are still expected to be above the norm on average. He noted that the Fed has unrealized capital gains of $200 billion on its balance sheet. 

While the interest rate paid on excess reserves is likely a key future monetary policy tool, Bernanke said that cutting this rate now would not be a powerful tool. 

Guidance is a big issue. Bernanke stated that the Fed will give lots of advance information about its unwinding strategy on quantitative easing. Slowness is a key theme. The Fed does not have to sell assets but also just let them mature.