Reconfirmation Of Bernanke Makes Sense
A lot of uncertainty from investors were laid to rest with the announcement by the Obama administration that Ben Bernanke’s will be nominated for a second term as head of the Federal Reserve. He may face some difficult questions during his confirmation hearings but most people feel his reappointment is a given.
It’s going to be a long road to recovery and the Fed will have a difficult task ahead as it tries to shrink it’s balance sheet as economic growth returns. It will also have to balance it’s dual mandates of maximizing employment and price stabilization while coming to grips with the country’s mounting national debt.
The Fed has had to take a number extraordinary actions of the past year in order to avert a collapse of the financial system and being able to properly unwind those actions in a timely manner maybe just as important. Both the economy and the banking system will be in a fragile state for years to come and avoiding a potential relapse will be the main focus.
Although the recession is expected to end soon, the Fed would like to keep rates low for an extended period of time if at all possible to stimulate growth. There is still the employment situation to worry about and the housing market has yet to recover from it’s collapse from two years ago.
Consumer confidence is still low and until that demand returns, inflation expectations will likely remain muted for the time being. It’s going to be a difficult juggling act once inflation rears it’s ugly head once again and it will with the national debt expected to double in the next decade.
