Commentary: Excuse Me, Mr. Chairman

Ben S. Bernanke gave a speech on the economy on Nov. 28 in New York, but he exited via a side door afterward without taking questions. Last I saw them, the Federal Reserve chairman and his posse were piling into black cars and zooming down Fifth Avenue, blue lights flashing. Oh, well. If Bernanke had stayed around for questions, here are some of the things I wish I could have found out from the man with a grip on the nation's money spigot:

What makes you so cheerful about the economic outlook?

In your speech to the National Italian American Foundation, you said: "Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy's long-run sustainable pace." That would presumably be a little under 3%, which is pretty good considering what's going on these days. Housing continues to weaken. Consumer confidence is below expectations. The day after you spoke, the Commerce Dept. announced that economic output grew at an annual rate of just 2.2% in the third quarter. The bearish Ian C. Shepherdson, chief U.S. economist of High Frequency Economics, said that your remarks on economic growth, housing, capital spending, and so forth are "only plausible if the data are viewed through deeply tinted rose lenses." So what do you see that others don't?

What house prices have you been looking at lately, Dr. Bernanke?

Here's what you said about the real estate market: "There can be little doubt that the rate of home-price appreciation has slowed significantly for the nation as a whole." That's an understatement. Prices are outright falling by several measures, though not all. Shortly before your speech, the National Association of Realtors announced that the median sales price for existing homes in October was 3.5% lower than the median a year earlier. That's not just a slowing of appreciation. It's true that the Realtors' numbers are skewed by a downscale shift in the mix of homes sold. Still, that was the biggest annual decline since the Realtors started collecting numbers in 1968.

Why are you so worried about inflation?

You said: "The level of the core inflation rate remains uncomfortably high," and you worried that labor costs "have been rising more quickly of late." Sure, it's the job of the Federal Reserve to be extra vigilant on inflation, and we're glad you're on the case. But there's mounting evidence that you may be too gun-shy, especially about pay hikes. On Nov. 29 the Commerce Dept. put out an unexpectedly low estimate for wages and salaries in the third quarter, largely because it dramatically lowered the estimate of second-quarter pay. As a result, corporate payrolls grew at only a 2.7% annual rate since the spring. While you talk about high inflation, the bond market is expecting low inflation and falling rates. In fact, yields on 10-year Treasury notes--at just over 4.5%, the lowest since January--are flashing recession warnings.

Are you determined to squeeze down inflation by keeping short-term interest rates high?

There's a theory that the "uncomfortably high" inflation you worry about won't go away unless the economy stays sluggish long enough that the unemployment rate rises. Is that what you believe? Would that explain why you and the rest of the Federal Open Market Committee are keeping the federal funds rate at 5.25%, and even hinting that it could possibly go higher?

And finally, how was the food?

We reporters didn't get to eat. Just asking.

By Peter Coy

The Good Business Issue
blog comments powered by Disqus