Bernanke’s message: we can get out of this hole

August 26, 2010

We may not be in such a bad hole here but if we are, we can get out of it. That is likely to be the message from Ben Bernanke, the U.S. Federal Reserve chairman, to bankers and policymakers at their annual powwow in comfortable Jackson Hole on Friday.

Bernanke’s keynote address comes at a moment of overriding fear for the U.S. and global economy. U.S. housing data this week were awful. Last week’s weekly jobless claims figure was alarming, though this week’s was marginally less so. Durable goods orders, excluding transportation, suffered their biggest fall in July for 18 months. To the markets, all of this is suggestive of the dreaded double dip.

The pace of economic recovery is disappointing, as Bernanke will probably admit. Job growth is anaemic. U.S. inflation, at 1.2 percent, is very low because goods are abundant but consumers reluctant. Deflation would mean that even ultra-low interest rates remain positive in real terms — and are therefore not the positive incentive to spend that the Fed wants to provide.

Nevertheless, Bernanke can argue that the second dip is probably not coming. The U.S. economy has grown for four consecutive quarters and is probably still expanding. Housing’s inevitable plunge from the bubble that began it all may finally be over.

But above all the Fed boss will almost certainly remind the world that the Fed can, and will, act if recovery really is failing. It will, if necessary, engage in a new round of quantitative easing, printing money that it would pour into long-term securities to flatten the yield curve and stimulate borrowing by companies and individuals.

Some Fed members are said to be reluctant to take another flight in the dollar-dropping helicopter imagined by monetarist economist Milton Friedman. And it is to be hoped that is the case. For patience may be all the recovery needs, not further monetary stimulus and, still less, fiscal spending. But if the hole proves deep, the helicopter will fly. By restoring confidence with that message, Bernanke may hope he can keep it parked on the helipad.

Comments

I want to get the collapse over with so we can go back to having meaning in our lives. Most of us are just wiped out. Flat out exhausted from this mess. I want to get married, buy a farm, and have kids – get me the heck off of this ride! When did that turn into such a fantasy?

Posted by misdelivery | Report as abusive
 

The problem is America keeps sending people around the rold to tell the world what they should do, BUT no one is listening. Condi Rice tried the same as Hillary did. America ses, BUT who is listening. America has lost credibilty world wide and even though Amercan media tries to sustain the unstustainable, the world moves on

Posted by diddums | Report as abusive
 

[...] U.S. economy has grown for four consecutive quarters and is probably still expanding,” Reuters writes, arguing that Bernanke has to remind the public that “the Fed can, and will, act if [...]

 

Big Ben just needs to keep printing paper and produce the 2-3% inflation we so sorely need

Posted by STORYBURNthere | Report as abusive
 

The Fed is a big part of this mess. They pump rates up to quash inflation from printing all that money, then the drop them to get things going again after they have choked the economy and then throwing more printed money at the problem. Over and over they do this! How can you call that a monetary policy? All it does is create opportunities for the hedgers and kills the normal investor! Up and down! Up and down all over again! Just leave the damn rates alone so people can make a long term investment without being clobbered by the Fed repeatably!

Posted by BajaPaul | Report as abusive
 

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