ANALYSIS:A ROUGH summary of Ben Bernanke's speech at the Federal Reserve's gathering in Jackson Hole yesterday is that the US economy needs more help from policymakers – but that the central bank will only provide a bit of it.
“I do not expect the long-run growth potential of the US economy to be materially affected by the crisis and the recession if – and I stress if – our country takes the necessary steps to secure that outcome,” said the Fed chairman.
The implicit message of those words is that, while the Fed will do everything it can, other policymakers are not taking those necessary steps. The Fed’s job is to deliver low and stable inflation and economic stability, but “most of the economic policies that support robust economic growth in the long run are outside the province of the central bank”.
He called for “good, proactive housing policies”, expressed an implausible degree of confidence in Europe’s ability to tackle its sovereign debt problems, and in some of his harshest words yet on fiscal policy, said that Washington’s agonised debate on raising the federal debt ceiling had hurt the economy.
“The country would be well served by a better process for making fiscal decisions. The negotiations . . . over the summer disrupted financial markets and probably the economy as well,” Mr Bernanke said.
Mr Bernanke has ramped up his rhetoric on fiscal policy in recent months but it was the first time he has suggested that the US budget process is so dysfunctional that it needs reform.
Although he did not say so outright, Mr Bernanke implied that he would support more fiscal stimulus now, to tackle the long-term unemployment that he said could leave a “major scar” on the US economy. “Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months.”
His statement that the Fed “is prepared to employ its tools as appropriate to promote a stronger economic recovery” was a robust signal that the central bank is ready to do more, most likely at its next meeting in September. – Copyright The Financial Times Limited 2011
