Guarded Bernanke still manages to toss a bone to Wall Street and Washington

August 31, 2012

Ben Bernanke has done it again. In his much-anticipated speech Friday, the Federal Reserve chairman managed to tell both investors and politicians what they wanted to hear – that “the stagnation of the labor market in particular is a grave concern” – all while saying next to nothing new about where U.S. monetary policy is actually headed. That the Fed, as Bernanke also noted, stands ready to ease policy more if needed was well known to anyone paying attention the last few months. We also know that the high jobless rate, at 8.3 percent in July, has long been Bernanke’s main headache in this tepid economic recovery.

Still, in Jackson Hole, Wyoming on Friday, it was like Bernanke tossed a bone to the hounds on Wall Street and in the Beltway without even getting up off his lawn chair.

For markets, hungry as they are for a third round of quantitative easing (QE3), the “grave concern” comment says the high unemployment rate and mostly disappointing job growth since March gives the Fed little if any choice but to act. U.S. stocks climbed and the dollar dropped after the speech, with traders and analysts citing the remark. “‘Grave’ concern with labor market is striking,” said David Ader, head of government bond strategy at CRT Capital Group.

For politicians, battling as they are in an election campaign where jobs are center stage, Bernanke is saying the Fed shares their deep concern about jobs. Democrats have struggled to lower the jobless rate from its crisis-era peak of 10 percent in 2009, and some like Sen. Charles Schumer have urged the Fed to take more policy action to help out, while Republicans say the millions of Americans still unemployed is reason enough to turn away from President Barack Obama. Said Steven Ricchiuto, chief economist at MSUSA, of Bernanke’s “grave concern” remark:

You have to say that in an election year. You’ve got the Republican convention that just took place, which was all about how bad the labor market is, and how kids can’t find jobs. If you’re the central banker and you might have to deal with these people in the future … are you going to say the labor market is okay?

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