Ben Bernanke met the press Thursday, something Federal Reserve chairmen have never done. Think of it as spring training in February as he took swings at softball pitches at the National Press Club in Washington.
In a few weeks, he'll have to handle some high, hard ones from Congress. Bernanke won't have to face chin music from Jim Bunning, the former Hall of Fame hurler and Republican senator who didn't treat him with the obsequiousness usually reserved for Fed chairman. Perhaps more daunting will be to testify before Ron Paul, the libertarian from Texas who chairs the House Financial Services Subcommittee on Domestic Monetary Policy since the GOP takeover of the House of Representatives last year.
Proving Lincoln's adage you can fool some of the people all of the time, Bernanke asserted to the credulous DC press corps that while the Fed's purchases of Treasury securities played a role in the rise in stock prices since last August, they did not affect the prices of commodities, notably food. Moreover, he rejected the premise that the civil unrest seen in Egypt and Tunisia could be attributed to Fed policy, which the questioner contended was responsible for higher food prices.
Commodity prices, including food, were driven by supply and demand, the Fed chairman argued. And that demand was being elevated by rising prosperity in emerging economies, which means a desire for a better diet. That, in turn, was mainly responsible for the sharp rise in food prices.
At the same time, the liquidity created by the Fed's purchases of up to $600 billion of Treasury securities was working as planned, Bernanke continued. According to the Fed chairman, QE2 has boosted asset prices, notably stocks; lowered market volatility and thus, risk; narrowed corporate-credit risk spreads; and has lifted inflation premia in the Treasury Inflation Protected Securities market. That Treasury yields are higher since the Fed started buying Treasury securities is not inconsistent with QE2's working.
That's been the Fed's story, and Bernanke was sticking to it...
Continued at:
http://online.barrons.com/article/SB50001424052970204703504576123841088120356.ht...
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