While most Americans have their minds squarely fixed on beach and barbecue plans this weekend, market participants had their eyes an ears affixed to Fed Chairman Ben Bernanke’s speech this morning in Jackson Hole, Wyoming. The Federal Reserve’s annual economic symposium there has become a key event for discerning what policy moves the central bank will take. But unfortunately for those who were hoping that the Fed Chair would announce a new round of bond buying, Bernanke did not signal that the central bank would be taking any new action to stimulate the sluggish U.S. economy in the immediate future.
The speech was a short — and mostly laudatory — history of the Fed’s efforts to combat the effects of the financial crisis. Bernanke cited one study that found that as of 2012 actions taken by the central bank “may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred.”
But the Fed Chair also stressed that as we get further removed from traditional tools for stimulating the economy, there are risks that further stimulus may have negative side effects. “Non traditional monetary policies have potential costs that may be less relevant for traditional policies,” he said. “For these reasons, the hurdle for using nontraditional policies should be higher than for traditional policies.”
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Even though Bernanke didn’t announce any new actions, he appeared to leave the door open for more “nontraditional” action – i.e. more bond buying – in the near future. He said that the “costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out further use of such policies if economic conditions warrant.”
The Wall Street Journal’s Jon Hilsenrath interpreted these statements as evidence that the Fed will announce more quantitative easing at its next meeting in September. Writes Hilsentrath:
“Maybe an unusually strong jobs report Sept. 7, a few days before Sept. 12 meeting of the Fed’s policy committee could change the Fed’s calculations. But taken together, the speech sounds a lot like Mr. Bernanke’s closing argument in favor for more easing.”
Even so, with unemployment so high and inflation so low, many critics of Bernanke see his lack of immediate action as unacceptable. And the fact that the central bank may do in September what these critics think should have been done months ago is cold comfort. As economist Justin Wolfers wrote on Twitter this morning, “So in September the Fed is going to take actions that were already overdue in July, and necessary partly to offset earlier inaction. #woohoo”