All ears are on Bernanke, Fed report

Monday, October 19, 2009

Federal Reserve Chairman Ben S. Bernanke will be earning lots of frequent-flier miles this week. Less clear is whether he will shed new light on the Fed's thinking about how long it will leave in place its extraordinary efforts to support the economy.

On Monday, Bernanke is scheduled to speak on "Asia and the Global Financial Crisis" at a San Francisco Fed conference in Santa Barbara, Calif. An open question is how much responsibility he assigns to global imbalances -- Asians saving too much, and Americans saving too little -- in causing the financial crisis. On Friday, he plans to address a Boston Fed conference in Cape Cod. His subject: "Financial Regulation and Supervision After the Crisis."

Neither of those speeches focus on the hot topic that is captivating Fed-watchers at the moment: when Bernanke might entertain raising target interest rates above their current level near zero or unwind other aggressive interventions. But both speeches are supposed to be followed by question-and-answer periods, and it is a safe bet that bond traders all over the world will be watching those sessions on hair-trigger, ready for anything Bernanke says that might hint at his inclinations -- whether Bernanke intends to send a signal or not.

In this quiet week for economic data, the best view on how the economy is doing won't come in the form of numbers at all. The Fed plans to release the latest "beige book" Wednesday. This compilation of anecdotal reports from businesses should offer a sense of whether the summer burst of economic activity is being sustained in various industries and regions.

Since output started rising a few months ago, the job market has remained generally miserable, even as the stock market has risen sharply and industrial production has increased steadily. The question is whether those signs of improvement are enough to make businesses confident enough to consider expanding and making new investments. The beige book should offer hints of whether that day, crucial to a sustained recovery, is upon us.

-- Neil Irwin

MUST READS: C. Fred Bergsten encourages the United States to get used to the declining dollar -- a key to bringing the world economy into better balance -- in Foreign Affairs. And the Web site for the Federal Reserve Bank of New York has a nifty tool to examine credit conditions in different parts of the country.

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