Alan Greenspan, who preceded Bernanke as Fed chairman for nearly two decades, said in a recent interview on CNBC, "The sooner we come to grips with this excessive level of assets on the balance sheet of the Federal Reserve â¿¿ that everybody agrees is excessive â¿¿ the better."
Economists say Bernanke will seek to clarify the Fed's message Wednesday. Yet they're unsure what he'll say.
Some think he could spell out the Fed's likely timetable for curtailing its bond purchases. The earliest the Fed is expected to announce a pullback is at its September meeting â¿¿ and only then if unemployment has declined and the economy is growing faster than its current sluggish annual pace of around 2 percent.
Other analysts think the economy will not have recovered enough by September. They believe the earliest the Fed will reduce its stimulus is at its final meeting of the year in December. Until then, they think Bernanke will seek to reassure investors that the Fed will make sure the economy has strengthened before it acts.Some in this camp say the economy will continue to be held back by a Social Security tax increase that kicked in in January and by federal spending cuts that began taking effect March 1. "There is nothing in the underlying economy that would suggest the Fed needs to change policy any time soon," said Brian Bethune, an economics professor at Gordon College in Massachusetts. "There is considerably slower growth on the radar screen and absolutely no inflation to worry about." Indeed, the Fed's preferred gauge of inflation tied to consumer spending rose just 0.7 percent in the 12 months that ended in Aprilâ¿¿ far below the Fed's 2 percent target. In addition to a statement announcing its policy stance and Bernanke's news conference, the Fed on Wednesday will update its economic forecasts, which it does four times a year. The forecasts will be scrutinized for any hints about the timing of future Fed action.