Could More Federal Stimulus Dollars Be On The Way?

Posted on July 14, 2011. Filed under: Uncategorized | Tags: , , , , , , , , |

By Scott Orr

That was the message from Federal Reserve Chairman Ben Bernanke, at least that’s the message Wall Street thought it heard.

After three days of losses, stock indexes rose sharply on Bernanke’s testimony before Congress, during which he spelled out steps the Feb might take if the economy gets worse.

The Fed Chief’s remarks came a day after minutes from a June meeting of the Fed governors were released, suggesting that some insiders favored a more aggressive approach to propping up the economy.

While the rally on Wall Street is certainly welcome, a measure of caution is in order here. Bernanke’s remarks were vague and offered little new. There was nothing on the order of his Jackson Hole speech, last August, in which he outlined specific plans to spur economic growth.

Wednesday’s remarks were more of a contingency plan should the economy worsen, not a promise to do more to set the economy right more quickly. Some economic strategists were quick to try and rein in the bulls.

“It’s a complete overreaction,” said Barry Knapp, head of U.S. equity strategy at Barclay’s Capital. Knapp told the Associated Press that Bernanke’s remarks indicated the economy would have to deteriorate substantially for the Fed to step in.

So what did Bernanke actually say? Well, his prepared testimony was pretty dry and contained zero in the way of promises of new action.

Here’s the salient section:

“The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further. One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels. Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings. The Federal Reserve could also reduce the 25 basis point rate of interest it pays to banks on their reserves, thereby putting downward pressure on short-term rates more generally. Of course, our experience with these policies remains relatively limited, and employing them would entail potential risks and costs. However, prudent planning requires that we evaluate the efficacy of these and other potential alternatives for deploying additional stimulus if conditions warrant.”

We’re not sure more stimulus is the right prescription for the economy right now anyway. And we’re sure that’s not what Bernanke was promising, even if the bulls on Wall Street heard it that way.

Turner GPA is one of the premier, highly respected government and public affairs firms in the nation. Turner’s state-of-the-art advocacy has earned them respect and acclaim from the media, clients, policymakers and even their competitors! Turner advocates on behalf of cutting edge businesses, municipalities, and non-profits that wish to ensure their perspectives and needs are taken into account in Washington, in state capitols and in City Hall, as well as in the media. The firm creates and implements intensely focused and targeted advocacy campaigns designed to meet and exceed its client’s expectations and goals. For more information on Turner GPA, visit www.turnergpa.com.

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