Fed Has Some Tricks Left, but None Are Magic

Since the onset of the financial crisis in August 2007, Federal Reserve Chairman Ben Bernanke has been pulling rabbits out of his hat. He cut interest rates to near zero, printed $2.3 trillion to buy Treasury bonds and mortgage debt, and, with a posse of sleepless economists, devised an alphabet soup of rescue programs for commercial-paper markets, money-market funds, dollar-starved European banks and other strained players in the vast global financial system.

The objective: to keep the damaged postbubble economy from drifting into zombie-land. Now, stock markets are gyrating and the economic outlook is growing dimmer. S&P's downgrade of U.S. debt is a reminder that the financial system is one shock away from more instability. As Mr. Bernanke prepares to lead a meeting of the Fed's policy committee Tuesday, he must be asking himself: Are there any rabbits left?

The answer: Yes. But some of them are very small. Some might bite. And he's reluctant to pull them out until he is sure the audience is ready.

In January, the Fed projected U.S. economic output would grow by as much as 3.9% this year. In April, it revised that down to 3.3%, in June, 2.9%, and now that looks optimistic. Unemployment is stuck above 9%. Prices rose more than the Fed expected early in the year, though inflation shows signs of retreating.

If Mr. Bernanke can help the economy, even at the margins, his record shows he will try. But he also is determined not to stir up inflation—now running nearer to the Fed's 2% objective—more than he already has.

Worries about causing inflation fears, coupled with divisions inside the Fed, make it unlikely that Mr. Bernanke is about to unleash a torrent of new securities purchases, known as quantitative easing. That's the big rabbit that might bite.

The earlier round of purchases was meant to hold down long-term interest rates and spur investment and spending, but printing lots of dollars puts upward pressure on prices and downward pressure on the foreign-exchange value of the dollar. While QE2, as it has been dubbed, has its critics, Mr. Bernanke is a believer. But he was more willing to try it last year, when inflation was too low, than he is now. As Donald Kohn, Mr. Bernanke's former top lieutenant, said last week, the Fed would probably want to wait to be sure inflation is actually slowing before launching QE3.

The smaller rabbits include the following. The problem is that none would do much to get the economy moving faster.

Meet the Ideas for Good winners

Last year Toyota officially announced the Ideas for Good Challenge. Participants in the challenge were tasked with taking one of five Toyota technologies and creating a new non-automotive application that would benefit society. More than 4,000 valid ideas were received and ultimately five winners were chosen, one in each of the technology areas. Last week, the winners gathered in Pittsburgh for a prototyping weekend at Carnegie Mellon University (CMU).

The five winners, who are mentioned only by first name, joined forces with engineers from Deeplocal, CMU staff, Toyota employees and others to take these ideas and turn them into working prototypes, all in a single weekend. I had the opportunity to travel to Pittsburgh and watch these creative geniuses transform their ideas into something tangible.

Congratulations to all of the winners.

We all know that a bicycle helmet could save your life in the event of a fall, but what if that helmet could tell you whether or not you need to go to the hospital? That is what Stu (pictured second from left, below) wants the bicycle helmets of the future to do. Using T.H.U.M.S. (Total Human Model for Safety) technology, Stu envisions a bicycle helmet that can gather impact data and determine if the biker needs to seek medical attention based on this data. This same data could also be used to make better bicycle helmets.


Pure Air by Tim
A major health problem in developing nations is smoke-based illnesses caused when biomass is cooked indoors. If you’ve ever cooked over a live campfire, you know that if you are in the path of the smoke, you can end up a coughing mess. Millions of families deal with this issue daily because they have no choice but to use wood and other biomass fuels to cook indoors. Tim's idea (that's him pictured below) takes the solar panel used on the new Toyota Prius and converts it into a power-generating device for an exhaust fan. The fan can help pull the air out during the cooking process and improve the air quality inside the dwelling.


Power Plant Gym by Birken

Birken was the youngest winner in the contest and his idea has been brewing in his head since he was a teenager — taking the energy produced by gym equipment and converting it into usable power. Birken’s prototype used Toyota’s Hybrid Synergy Drive to convert energy into enough power to charge an iPod or even a laptop.


Automated Firefighting Extension Ladder Guidance System by Fran

Fran can thank his 6-year-old for his winning submission. His children were playing fire rescue but there were no firemen around. Fran asked where the missing firefighters were and the children said it was too dangerous for them — and an idea was born. Fran’s idea uses Toyota’s Advanced Parking Guidance System to create a sensor pack that can provide firefighters with real-time data. The data provided helps firefighters make more informed decisions without putting them directly in harm’s way.