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What questions should House members ask Chairman Bernanke during his biannual Humphrey-Hawkins testimony?
Steve Oliner, former senior Fed official, would ask:
• Mr. Chairman, what is the consensus view of the FOMC on tapering QE? The June FOMC minutes stated that about half of the committee members favored ending the QE purchases altogether before the end of this year. But in your press conference immediately after the June meeting, you said the Committee expected to end its QE asset purchases around the middle of next year, conditional on the economy evolving in line with the FOMC’s outlook. These two statements are at odds.
• Is there an unemployment threshold for ending QE? In your June press conference, you said that the unemployment rate likely would be in the vicinity of 7% when the QE purchases come to an end. The minutes to the June FOMC meeting make no mention of any discussion of a threshold unemployment rate for the end of QE. Can you tell us how this threshold was selected and by whom?
• What is the true unemployment threshold for increasing the federal funds rate? Your public comments since the June FOMC meeting have suggested that the federal funds rate could well remain at the zero bound until the unemployment rate is considerably below the 6-1/2% threshold that the FOMC has enunciated.
• How has the rise in long-term interest rates over the last couple of months impacted your outlook for the economy?
John Makin, chief economist on Wall Street for 20+ years and former consultant to the CBO, Treasury Department, and IMF, would ask:
• Mr. Chairman, should the Fed’s growth forecasts be reduced? Since your May 22 testimony that raised the issue of reducing bond purchase this year, “tapering” the US economy has slowed, inflation has fallen, and mortgage rates have risen by over a percentage point.
• How, if at all, should QE be adjusted for slowed growth?
• Why do you assume inflation will rise in view of a slowing global and US economy? Do you disagree with IMF warnings of a weakening global economy?
And some real basic questions, just for kicks:
• Mr. Chairman, what does success for QE look like? First quarter GDP growth was revised downward to 1.8%. Only modest growth is expected for the next half of the year. What is your proof that QE continues to work?
• How do you expect markets to react when tapering actually begins? Markets dropped precipitously following your press conferences when you just talked about theoretically tapering. This seems to indicate that no matter how smoothly the Fed tapers or how precise and measured the Fed’s plan, the market reaction could be extremely volatile. Is the US at a risk of another recession if we taper too quickly?
• If you could offer your successor one piece of advice on QE, what would it be?
Check out @AEIecon for AEI scholars’ real-time reactions to Bernanke’s testimony. Bernanke’s written statement will be released at 8 AM on Wednesday. His testimony before the House Financial Services Committee will begin at 10 AM. On Thursday, he’ll testify before the Senate Banking Committee.
For AEI’s best work on the Federal Reserve, QE, and Bernanke, click here.
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