Ben Bernanke‘s semi-annual, two-day testimony begins at 2:00 and the general consensus is that he’ll say very little new, except that he could go into some detail about possibilities for more Fed-borne stimulus.
Theoretically, the Fed has five broad (and not mutually exclusive) approaches available if it deems—and I suspect it is not ready to do so yet—that additional policy actions are needed: hyper time extend the “exceptionally low for an extended period” interest rate signal; push banks to lend more by cutting the interest it pays on reserves; directly extend loans to certain segments of the non-financial economy; resume asset purchases; and cap interest rates.
In a sense the Fed is already doing the first one (extending the language), which is being accomplished by stories about how the Fed is considering more stimulus, which is in itself (theoretically)stimulative. Pushing banks to lend more by cutting reserves is what was rumoured yesterday, but the maths doesn’t amount to a whole lot.
Directly extending loans to the non-financial economy is kind of an interesting idea, except that it would have to be to small businesses, since we already know that large firms are underleveraged, and have no idea what to do with their cash.
We’ll obviously be covering anything notable that comes from the Chairman’s testimony.
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