If we were attending the Fed’s historic press conference tomorrow, here are the ten questions we would ask Chairman Bernanke:
1) Do you think the new monetary policy tool of the Federal Reserve of paying interest on reserves (IOR) is contradictory? That is, increasing the IOR rate is equivalent to a liquidity injection as the Federal Reserve makes more interest payments to banks. Will the markets think it credible that printing money (or turning over less surplus funds to the Treasury) to make these interest payments is really a tightening of monetary policy?
2) How much of the current oil price do you think is real and how much is speculation? And do you think the Fed’s zero interest rate policy (ZIRP) is having any impact on the price of commodities, especially food and oil?
3) You missed the housing bubble and misread systemic leverage so what do you fear today that you may be missing and getting wrong?
4) Was the recent tax cut extension, effectively financed by QE2 , equivalent to what you stated in your famous 2002 speech –“ A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.”
5) Do you think Fed policy could be having a perverse impact on the economy as the dollar weakens, food and energy prices increase, causing real wages and consumption to fall leading to weaker economic growth and deflation in other goods and services?
6) Who do you think will step up and be the main buyer of Treasuries once QE2 ends?
7) Since the start of the millennium, why have real short-term interest rates been negative the majority of the time? Is there some fundamental flaw in the U.S. economy that necessitates this?
8) When will the Fed start rewarding savers rather than debtors and speculators?
9) Were you scared during the financial crisis, as Henry Paulson has admitted, and how close did the global economy come to the abyss? Please define abyss.
10) What do you think would have happened if the Fed had not taken the extraordinary steps it did during the financial crisis?