On Wednesday, Federal Reserve Chairman Ben Bernanke will hold a rare and highly-anticipated press conference. A timely report by the Congressional Research Service at the request of Sen. Bernie Sanders may provide some helpful background, as Sanders states:
This report confirms that ultra-low interest loans provided by the Federal Reserve during the financial crisis turned out to be direct corporate welfare to big banks. Instead of using the Fed loans to reinvest in the economy, some of the largest financial institutions in this country appear to have lent this money back to the federal government at a higher rate of interest by purchasing U.S. government securities.
In advance of Bernanke's press conference, many media outlets (here, here and here) and financial bloggers (here and here) have been collecting and posing questions for him. Adding to the mix, here are some from CEPR:
- Last month, you testified that the House 2011 budget plan, which would have cut $60 billion in spending, would cost the nation about 200,000 jobs over two years. In your opinion, how would the recently-passed House 2012 budget, which cuts trillions in spending, affect the economy and unemployment rate?
- The Federal Reserve Act states that the Fed's goals are to both promote "maximum employment" and "stable prices." Currently inflation is exceptionally low, while unemployment is painfully high and projected not to return to pre-recession levels for a decade. Do you believe that the Fed's goal of maximum employment is as important as price stability, and if so, what more aggressive actions should the Fed take to reduce unemployment?
- Prominent economists, including the chief economist at the International Monetary Fund, suggested that central banks should target an inflation rate of between 3-4 percent. The current policy of targeted 2 percent inflation had proven incredibly costly to the country's workers. Has the Open Market Committee discussed these recommendations, and if not, why not?
- In the current downturn, the Fed bought hundreds of billions of dollars of long-term government bonds and more than $1 trillion of mortgage backed securities in order to help keep long-term interest rates low and to support the economy. Instead of selling this debt back to the public, as currently intended, if the Fed were to hold this debt indefinitely, and as Japan has done without sparking any inflation, it would keep the flow of interest on this debt going to the Fed and therefore back to the Treasury. This way the debt issued to support the economy in the downturn does not become a burden on the government in the future. Would you support such a move by the Federal Reserve?
- One week later after Secretary Paulson proposed the TARP in Sept. 2008, you testified before Congress that "deteriorating financial market conditions have disrupted the commercial paper market and other forms of financing for a wide range of firms... I urge the Congress to act quickly to address the grave threats to financial stability that we currently face." On Oct. 3, the TARP became law. Four days later on Oct. 7, the Fed announced the creation of the Commercial Paper Funding Facility (CPFF) to "encourage investors to once again engage in term lending in the commercial paper market." If you knew in Sept.that the slowdown in the commercial paper market was a grave threat to our economy, why did you wait two weeks before announcing the creation of the CPFF? Shouldn't you have told Congress of your plans to create the CPFF before it voted on the TARP?