You have reached your limit of free articles this month.

Enjoy unlimited access to SpringfieldNewsSun.com

Starting at just 99¢ for 8 weeks.

GREAT REASONS TO SUBSCRIBE TODAY!

  • IN-DEPTH REPORTING
  • INTERACTIVE STORYTELLING
  • NEW TOPICS & COVERAGE
  • ePAPER
X

You have read of premium articles.

Get unlimited access to all of our breaking news, in-depth coverage and interactive features. Starting at just 99c for 8 weeks.

X

Welcome to SpringfieldNewsSun.com

Your source for Clark and Champaign counties’ hometown news. All readers have free access to a limited number of stories every month.

If you are a News-Sun subscriber, please take a moment to login for unlimited access.

Bernanke’s new formula for pleasing investors


In his final performance, Ben Bernanke rewrote the script.

Investors had been on edge for months about when the Federal Reserve might slow its economic stimulus. A pullback in the Fed’s bond purchases, they feared, could jack up interest rates and whack stocks. Bernanke’s mere mention of the possibility in June had sent stocks tumbling.

So on Wednesday, Bernanke showed something he’d learned from leading the Fed and addressing the public for eight years: Tough news goes down best when it’s mixed with a little sweetener.

At his last news conference as chairman, he explained that the Fed would trim its monthly bond purchases by $10 billion to $75 billion — a prospect that had worried the markets.

Yet Bernanke also calmed nerves by walking back a plan to consider raising short-term rates once unemployment reaches 6.5 percent from the current 7 percent.

That 6.5 percent threshold the Fed had been using? Not much of a threshold anymore. The Fed now says it expects to keep its key short-term rate near zero “well past” the time that unemployment falls below 6.5 percent.

The message: The Fed expects low-cost loans to boost the economy for, well, for a very long time.

Investors rejoiced by sending the Dow Jones industrial average rocketing nearly 300 points to a record high.

It means that five years after the Fed responded to the financial crisis by cutting its key short-term rate to near zero, it has no plans to change course. Low rates encourage spending, hiring and investing. At the same time, critics say it can inflate dangerous bubbles in stocks, housing and other assets.

Bernanke’s remarks suggested that three factors had led him to the balance he struck Wednesday: The unemployment rate can be misleading. The Fed wants to avoid setting unrealistic expectations. And inflation remains so low that it poses a potential problem for the economy.

“It comes out of the danger that you’re getting so specific with these unemployment rates, you end up in a situation where you put yourself in a corner,” said Wells Fargo chief economist John Silvia. “Sometimes you can be too specific and too transparent, certainly in the uncertain world of economics.”

With the Fed essentially dropping the 6.5 percent unemployment threshold, Bernanke signaled that he now sees greater public transparency — a longtime priority of his as chairman — as being somewhat flawed. It also means his likely successor, Janet Yellen, will feel at liberty to show similar flexibility.


Reader Comments ...


Next Up in Business

Gmail phishing scam may lead users to give up login info
Gmail phishing scam may lead users to give up login info

A new phishing scam is allowing hackers to gain access to unsuspecting Gmail users' accounts and target their login credentials, according to recent reports. Mark Maunder, CEO of security service Wordfence, described the scam in detail in a blog post, adding that it is also targeting other services beyond Gmail. Tech Times reported that the scam involves...
Millennials spend more on coffee, save less for retirement
Millennials spend more on coffee, save less for retirement

A large number of Millennials spent more on coffee in the past year than they invested in their retirement savings, according to a new study. » RELATED: What makes Millennials tick in the workplace? It may surprise you About 41 percent of the Millennials — ages 18 to 35 — admitted to spending more on coffee than they saved for retirement...
Some worry over impact from health care law repeal
Some worry over impact from health care law repeal

The U.S. House of Representatives on Friday joined the U.S. Senate in passing a budget reconciliation measure that would allow Congress to de-fund key elements of the Affordable Care Act, including tax credit subsidies and federal funding for Medicaid expansion in states like Ohio. While some are rejoicing over the move, replacing President Obama&rsquo...
Will Obamacare repeal leave people in the lurch?
Will Obamacare repeal leave people in the lurch?

As Congress moves forward on a resolution to repeal the Affordable Care Act, experts have warned such a measure could crash the law’s commercial insurance program, jeopardizing coverage for 11.5 million Americans, including more than 230,000 Ohioans. But local industry leaders remain hopeful that congressional Republicans — who are leading...
Holiday retail sales up, but some stores suffering
Holiday retail sales up, but some stores suffering

Retail sales hit about $658 billion for the holiday season, but several chain retailers still announced the closures of hundreds of unprofitable brick-and-mortar stores in January — including several stores locally. “These numbers show that the nation’s slow-but-steady economic recovery is picking up speed and that consumers feel...
More Stories