After the announcement of a third quantitative easing program, critics were quick to point out the flaws and inevitable downfalls of Bernanke’s plan, Commodity HQ included. The main complaints have been that the consistent money printing will eventually lead to hefty inflation and a weak dollar. Others feel that QE is simply propping up the economy and when the asset purchasing is stopped, the economy will suffer a major blow. Though Bernanke has been quiet since the announcement of the open-ended easing, he has since publicly reached out to decry the criticisms from analysts around the nation [for more economic news and analysis subscribe to our free newsletter].
Today saw Bernanke fight back, defending his program that he believes is the key to our economic recovery. Rampant money printing has been one of the biggest picking points for experts, as they feel that Bernanke’s bold policy simply is not effective. In response, he stated that “while the country’s unusually weak economic performance had forced the Fed to resort to less conventional tools after bringing interest rates all the way down to effectively zero, the Fed’s goals of price stability and maximum sustainable employment have not changed”. His ultimate goal is for as many Americans that want jobs to be able to get them and to keep the increase in consumer prices low and stable.
While inflation may be low for now, many fear that the constant dollar debasement and jump in money supply will eventually spark a major increase in prices or even the dreaded hyperinflation. In response, Bernanke stated that inflation has hovered around the Fed’s goal of 2% and that he largely expects it to remain there, meaning it should not be a cause of concern. While it may sound reassuring to hear that from the Fed, some are simply unconvinced that inflation can stay low given the current environment. Still others are concerned that the Fed is failing to accurately predict what may be around the corner [see also Peter Schiff: The Only Way To Fix The Economy Is To Let It Fail].
Finally, Bernanke addressed the issue of near-zero rates that have been effectively locked until 2015. This policy has come under fire from a number of hot-shot analysts, as they feel that low rates are actually hindering the economy rather than helping it. “As long as price stability is preserved, we will take care not to raise rates prematurely” said Bernanke, meaning that until inflation kicks up, he sees no reason to raise interest rates.
Unfortunately, Bernanke’s retorts featured little quantitative evidence, which may weaken some of his points. For the most part, he said nothing new, but simply reiterated the points he has been making all along. So what do you think, are any of Bernanke’s points justified, or are his policies putting us on the fast track for tough times? Let us know in the comments below.
Disclosure: No positions at time of writing.