Wednesday, February 24, 2010
Maybe the idea of more Congressional oversight of the central bank isn't such a good idea after all. In the question and answer session with Federal Reserve Chairman Ben Bernanke before the House Financial Services Committee a short time ago, Rep. Maxine Waters (D-CA) asked the following questions:
Starting with your discussion on page 4, "in addition to closing the special facilities, the Federal Reserve is normalizing its lending to commercial banks through the discount window" and you go on to talk about your new federal funds rate and a discussion of why you have done this and encouraging banks to go to the private market for investments.Wow - a pretty stunning lack of basic understanding about how the central bank works.
And you say further in this discussion that these adjustments are not expected to lead to higher financial conditions for households and businesses.
The last thing I heard before I came here this morning was a prediction by some of the analysts on television that, in about one month, we can expect that there will be an increase in interest rates on mortgages and home loans. Everybody that I talk to really believes that this change that you have made in the federal funds rate is what's going to trigger that.
Is that true? Did you give any thought to this? How can you guarantee that it won't?
Recall that, last week, the Fed funds rates was not raised - it was the discount rate that was hiked from 0.5 percent to 0.75 percent and the potential rise in mortgage rates next month would come about due to the Fed stopping their purchase of mortgage backed securities.