Bernanke to the Hill: Will the Fed Signal More Easing?
Federal Reserve Chairman Ben Bernanke heads to Capitol Hill Thursday to testify before a Senate committee on the state of the economy.
After a dismal May jobs report last Friday and the ongoing fiscal and banking crisis in Europe, there is building pressure on the Fed to take action since the U.S. Congress has been unable to work on a bipartisan basis to put forth any solutions of their own.
But what more can the Fed do? That’s the big question.
The law of diminishing returns has taken hold with each additional round of easing undertaken by the Fed, the latest of which is set to end this month (See: Operation Twist). Interest rates have hit historic lows and the Fed has pledged to keep them near zero until at least 2014. The yield on the 10-Year Treasury (^TNX) hit a recent low of 1.44% and is currently trading at 1.56%.
Steve Wood, chief market strategist at Russell Investments, joins The Daily Ticker’s Aaron Task in the accompanying video to discuss whether Bernanke will give markets any indication that the Fed is considering stepping up to the plate yet again.
Another round of easing “has always been on the table, but the Fed’s position is they want to see bad enough data come in before they commit” to anything else, says Wood. “I think the data right now is soft enough that the data is going to force the Fed to seriously consider something.”
But if history is any guide, it still may be too soon for the central bank to make any decisions until well after its next two-day meeting set for June 19-20.
Despite the looming fiscal cliff at the end of 2012, the consensus at Russell Investments is for the U.S. to dodge another recession, which echoes the latest comments from Warren Buffett who sees a “very low” chance of economic deterioration in the U.S.
While markets wait on the Fed, Wood says the U.S. is already getting free quantitative easing. “The problems in Europe, the mess over there, has created a panic so the United States has benefited” from being considered the “safe haven,” he says, noting the falling yields on Treasuries in recent weeks.
Tell us what you think! Do you believe the Fed will announce a new round of QE or other method of monetary accommodation in the coming weeks?
Will Congress get anything accomplished before the November elections?