Federal Reserve Chairman Ben Bernanke has some big news today. If you want to be the first in the know, join us here at 3:45PM ET/12:45 PM PT as Wall St. Cheat Sheet Assistant Editor Xander Schachtel will provide you with fun, LIVE coverage of Ben Bernanke’s big speech by curating everything you need to know.
Wall St. Cheat Sheet Assistant Editor Xander Schachtel on the beat. If you have questions or comments, feel free to join the conversation in the comments section below.
4:48PM: Thank you’s and applause as Bernanke leaves the stage. The speech is already drawing some scathing reviews from bloggers and commentators, especially after head of JPM tells Bernanke that the new regulations are too tough on banks…regulatory environment continues to plague financials…Fed admits they have no idea what it will do to broader economy…Keep up with Wall Street Cheat Sheet to see how Bernanke’s policy changes play out in the economy.
4:44PM: Q: JP Morgan Jamie Dimon: I have great fear that someone in the future will see that everything we did to try to restore crisis had effect of slowing recovery…most of the culprits are gone, regulations have become more transparent, higher capital and liquidity are in the marketplace, requirements are tougher, regulators are tougher. Mortgage underwriting has gone back to 30 yrs ago, no more sub-prime, no more packaged mortgages…now we’re told that capital requirements and new rules are looming…why do we keep holding banks at bay? Is it holding us back? A: Bernanke laughs, says those indications are signs that we are getting a lot done, most extensive financial reform since the 1930s, many people are saying the single cause of crisis was x, there was no single cause, rather an interaction of causes, so we have many things to fix. What we are trying to do (the Fed) is to move expeditiously as we can to develop a new framework, rules that make sense, consistent with good practice, that do not unnecessarily restrict credit. Its more difficult for the small banker right now than it is for JP Morgan Chase. There’s certainly a trade-off there, we can’t repeat what happened but we need to allow for credit to be extended.
4:35PM: Q: Related to liquidity issues, shadow banking, developments at Basel. A: Basel rules do not take place until 2013, we want to make sure we have the right structure, calibration, as we make these changes we require banks to have more liquidity, what are the implications of that for the entire system? We realize that it will take some time to implement a regime that is effective for the entire system.
4:28PM: Q: HSBC Banker, In terms of risks presented in recent crisis, are you satisfied with momentum in cross-border resolutions to these issues? A: Difficult and important question, cross-border resolution is a big problem. Even within Europe we have different finance and bankruptcy laws, which can be challenging. FDIC is taking a lead role in trying to develop tools it needs to resolve a large failing financial institution, have been in close contacts with counterparts in Europe trying to establish protocols for helping multinational firms in stress. Many legal issues to be addressed, but a good start has been made.
4:25PM: Q: Do you have concerns on how new financial regulations will hurt banks, credit availability, economic performance? A: There is good reason for these reforms, we just came out of a major financial crisis, it is very important that we take a long look at financial regulatory system to prevent another crisis, improve resilience of system. We also continue to work with the international community to develop a level playing field, leaving space for innovation and competition.
4:22PM: Q: Ed Clark, TD Bank, you said optimum solution would be long-term, addressing debt issues, if we can’t resolve these issues politically, where would you come down on taking out the stimulus. A: I won’t choose between two inferior outcomes. Our deficit this year is extraordinarily high, but largely due to weakness of economy, will right itself when economy strengthens.
4:19PM: Q: Many economists in Asia predict further weakening of dollar, due to growth, trade surplus, and expected reduction in holding of US assets in Intl. Reserves of Asian nations, so will there be pressure in the future for US to increase interest rates? A: Any finance textbook will tell you exchange rate has two parts, inflation differential and real exchange rate, in the U.S. the Fed has been successful in keeping inflation stable since mid 198os. Fed efforts to keep interest rates low is a positive factor for the dollar, exchange rate depends largely on the attractiveness of the economy to foreign capital flows. “What the fed needs to do to provide good fundamentals for the dollar, keep inflation low and help recovery, exactly what we are doing.” Bernanke tears into this question, big win for him, made the reporter (Malaysian) look like a fool.
4:15PM: “Until we see more job creation, recovery not truly established.” Until then, Bernanke says current FOMC policies will continue, now to field questions from audience.
4:12PM: Bernanke defends low interest rates as unrelated to increases in commodity prices. Most growth in emerging markets reflects bounce-back from recession, not result of “overheating” due to low interest rates. Conclusion, “Job situation remains far from normal, inflation has risen lately but should moderate, against this backdrop the FOMC has maintained a highly accommodative monetary policy, keeping the federal funds rate close to zero.” Economic conditions will warrant exceptionally low levels in funds rate for extending period. Economy facing worse conditions since great depression.
4:09PM: Bernanke continues on commodities, “it is reasonable to expect the overall effects of commodities prices on inflation to be moderate in near term,” monetary policy on the table now. “Dollar decline can explain only a small portion of oil price rise.” Value of dollar is not just impacted by monetary policy…financial crisis triggered bear-market for dollar, devaluing currency. Persistent trade deficit “fundamental source of recent decline in dollar trade value.”
4:06PM: Not all commodities rising in price, such as rice, natural gas, and lumber which have gotten cheaper in recent years. “Commodity prices can be volatile,” recently they have been particularly sensitive to changing outlooks in global economic projections and geo-political changes. “Commodity prices will not continue to rise as we have seen recently.”
4:04PM: Bernanke reiterates he is not critical of these emerging economies, he cites slowed increases in supply do to “slow rates of production.” Singles out OPEC as lagging in production “3 billion barrels per day below peak of 2008.” Other commodities (agriculture) hard-hit by bad weather, droughts in Russia, US, China, France.
4:02PM: Increased demand from emerging markets rapid growth in recent years is fueling surge in commodity prices. US oil usage down, oil imports down in same period. “Pattern is not unique to oil,” industrial metals have increased by triple digit percentages due to emerging markets’ demand.
4:00PM: Fed will take whatever action necessary to keep inflation under control. Commodity Prices: “oil prices have risen significantly,” spot price up 40% from last year. Corn and wheat prices double, industrial metals also up 1/3rd. “Recent increase in commodity prices is a result of the same factors that drove commodity prices higher in last decade, strong growth in demand that has not been met.”
3:58PM: Inflation outlook: “inflation not ingrained in economy” recent increase in inflation should prove transitory. Recent declines in commodity prices point towards this. Two factors keeping inflation in check, 1) high unemployment, 2) long-term expectations for inflation are still low
3:54PM: Policy makers need to balance the budget, says Bernanke. “Need to realize fiscal problems are long-term in nature,” enact a credible plan to consolidate.
3:52PM: Bernanke moves to business sector, says it is doing well, “corporate balance sheets are strong.” Cites increased capital spending. Construction industry, “housing more affordable…but homebuyers unable to qualify for loans.” Large inventory of vacant and foreclosed properties overhanging the market has led housing prices to fall. “The depressed state of housing in the united states is a big reason that the current recovery is less vigorous than we would like.”
3:50PM: Bernanke talking about unemployment, “nearly half of unemployed have been jobless for more than 6 months,” says this is a problem as they will have increased problems getting new jobs the longer they remain unemployed. Not all bad news, private sector payrolls on the rise. However, “recent indicators suggest some loss of momentum.”
3:48PM: Households facing “negative headwinds” via high unemployment, weak labor market, rising food and fuel costs. “As you know, the job situation remains far from normal.”
3:45PM: The groundhog emerges from the hole. Bernanke begins to speak, “Supply chain disruptions are interrupting economic activity.”…indicators are also weak this quarter. “Growth seems likely to pick up in 2nd half of year, recovery continues to pick up at moderate pace.” “Frustratingly slow.”