Ben Bernanke is on the global hot seat. When the Federal Reserve chairman testifies before Congress on Thursday, analysts, regulators and investors from around the world will be hanging on his every word. And one question looms large on their minds: will Bernanke announce a new round of stimulus in the wake of Eurozone troubles and lousy American job data?
The View From Canada
In Canada, one economist says the former Princeton professor must resign if the answer is no. Writing in The Globe and Mail, Mike Moffat argues that previous rounds of quantitative easing (where the central bank creates money and uses it to buy assets, typically bonds, to help reduce the price of credit) helped prevent an even worse recession. Without more stimulus, he warns, America could be headed for “Japanese-style deflation” (a recent report from Business Week reaffirms this fear).
But opponents of further stimulus, who include members of the Federal Reserve, say more stimulus would mean too much inflation.
For now, it appears the Fed might inject some credit into the financial system, thought it might not be enough for Moffat. The Edmonton Journal quotes a Connecticut-based trader as saying that poor jobs data “give considerable political capital for the US Federal reserve to announce further QE . . . More and more people are crowding into a shrinking asset space where the economies (US and Germany) are not faring as well as most had hoped.”
A British Perspective
A Financial Times editorial agrees with Moffat’s point, though in less combative language: “First, and most immediately, Ben Bernanke [should] reverse the hawkish drift at the Federal Reserve and announce a third round of quantitative easing.” It also calls on Congress to resolve the crisis over American’s sovereign debt so that business can invest without worrying about a potential government shutdown.
If “QE3” goes forward in America, expect the Bank of England to follow suit.
Bernanke Sets the Global Mood
As nervous investors attempt to divine an uncertain future, stocks around the world fluctuate with Bernanke’s public statements. When the Fed chairman suggested last month that stimulus was likely, Asian stock markets rallied. But the Nikkei and other exchanges have resumed their free fall as the U.S. economy slows down and American lawmakers prepare for their favorite sport: attacking Bernanke and the Fed. Today The Japan Times reports that the Topix, an index of the Tokyo Stock Exchange, is at its lowest point since 1983.
In Germany, the financial picture is similarly gloomy. On Monday, its DAX exchange slipped below the 6,000 point mark, a traditional measure of economic confidence, for the first time since January. In an article for Deutsche Welle’s website, a French investor describes the situation: “Everybody is now waiting . . . for what [Bernanke] will announce on Thursday. There are strong expectations that something will happen, otherwise the markets will go much further down.”