Reuters
Published May 17, 2017 02:52PM ET
Ex-Fed Chairman Bernanke 'puzzled' by market indifference to political risk
By Lawrence Delevingne and Svea Herbst-Bayliss
LAS VEGAS (Reuters) - Former Federal Reserve Chairman Ben Bernanke said on Wednesday that he is "puzzled" by how little markets have reacted to major political risks, and skeptical about the Trump administration's ability to fulfill its pledges to stoke faster growth.
"It puzzles me that markets are very blasé about political risk until the last minute," Bernanke said during a discussion on stage at SALT, a financial industry conference in Las Vegas affiliated with Skybridge Capital.
Even so, Bernanke said he expects the Fed to keep hiking interest rate targets in the near term as the U.S. economy continues to grow.
The biggest political risk is heightened tensions between the United States and North Korea, Bernanke said. And while no major trade war has "blown up," that is also something "we have to keep a close eye on," he added.
As Bernanke was speaking, major U.S. stock indexes were headed for their biggest declines in more than eight months on news reports that President Donald Trump may have tried to interfere with a federal investigation.
Despite the one-day blip, markets have generally been rising for months with historically low volatility despite a host of scandals and frequent provocative statements from the White House and Trump's Twitter account. Among other things, Trump has at times vowed to change U.S. trade policies with China and Mexico, as well as the North American Free Trade Agreement (NAFTA).
Bernanke said he is not certain the Trump administration will accomplish infrastructure improvements and an overhaul of the U.S. tax code any time soon. Delivering on those early promises "will be harder now" Bernanke said, pointing to Trump's low approval ratings.
Bernanke chaired the Fed for eight years and oversaw the U.S. central bank's response to the 2008 global financial crisis. That involved unprecedented measures, like setting interest rates near zero and flooding markets with trillions of dollars of liquidity.
He is now an economist at the Brookings Institution and an adviser to hedge fund manager Citadel and bond fund manager Pimco.
Bernanke's successor, Janet Yellen, stepped into the role in 2014 and has overseen a gradual raising of interest rates as the U.S. economy has improved. Bernanke predicted rates will continue to rise "very slowly" and said Trump should re-nominate Yellen, whose term is up next year.
Bernanke expects "moderate growth" to continue for some time, but warned a correction is likely in the next four years from a statistical standpoint.
"Over the next four years," he said, "there is a pretty good chance we'll have a downturn."
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.