Moreover, it struck me that such a stance risked creating a perception that the FOMC might be a little bit trigger-happy in reacting to short-term developments in the securities markets; that we were collectively signaling there was a readily available “Bernanke Put.” The press and the Street are currently brimming over with assumptions about new fixes. Market operators are, to varying degrees, pricing in probabilities of one or more of the following: further expansion of our balance sheet; an “Operation Twist,” wherein we lengthen the duration of our portfolio so as to drive down already historically low nominal intermediate and longer-term rates (rates that are below 2 percent all the way through the 10-year range and have negative yields in real terms); reducing from 25 basis points to zero what we pay on excess reserves (though the banks that deposit these reserves with us reportedly aren’t able to identify a sufficient number of willing borrowers or believe they need a cushion to deal with regulatory concerns). The Federal Reserve has done a great deal to reverse the situation that we confronted in 2008 and 2009. As I have said repeatedly, we have filled the gas tanks of the economy with affordable liquidity. What is needed now is for employers to confidently step on the pedal and engage the transmission that will use that gas to move the great job-creating machine of America forward. Sources of uncertainty That confidence is not lacking because of U.S. monetary policy.
I am pleased that Dick Berner, a former NABE president now at Treasury, running the Office of Financial Research, is here. I believe it was Dick who, during a round of golf at Jackson Hole [Wyo.] long ago, told me the bad joke about the fellow who suggested that a moose crossing sign be moved because “there is too much auto traffic where the sign is currently located.” I also see Bill Dunkelberg, another former NABE president, who has been most generous in sharing with me and my staff his understanding of the whys and wherefores of small business, an important input into the way we look at things at the Dallas Fed. There are many others here today whom I would acknowledge if time permitted, but I ask their forbearance so that we can get down to business. As learned economists, you are fully aware of the nation’s predicament. Chairman [Ben] Bernanke reviewed it concisely in his speech at Jackson Hole and again, just last week, in Minneapolis. Knowing that most of you read those speeches, my guess is that you are looking to me for two things today. The first, given that you are in Dallas and the nation is in the throes of a presidential election season with two Texas contenders for their party’s nomination, would be the Dallas Fed’s perspective on the much-discussed Texas economy.