In the past few days we have seen the president and the chairman of the Federal Reserve both standing up and insisting they had more cards at their disposal to rescue the faltering American economy. In truth, though, both men look like they are holding weak hands, and are reduced, for the time being, to putting a brave face on things.
With short-term interest rates already at zero, Ben Bernanke has few cards he can play, and none of them feel like sure-fire winners. One is to restart an aggressive program of purchasing government securities to drive long-term interest rates down still further, another is to cut the interest rate on reserves, and a third, desperate measure would be to raise the inflation target. None of those cards are likely to be played unless things get significantly worse.
In theory President Barack Obama has more options at his disposal, but it is far from clear what he can actually get through Congress in election season. Today Obama promised that his economic team was “hard at work in identifying additional measures” to support the economy and boost hiring. But he had few new ideas to offer, besides extending tax cuts for the middle class that are set to expire this year, increasing government support for clean energy development, and rebuilding more U.S. infrastructure.
Obama did say he was considering “further tax cuts to encourage businesses to put their capital to work creating jobs here in the United States,” and he also appealed to Senate Republicans to drop their “blockade” of a bill meant to make credit more easily available for small businesses. More details of his proposals are promised in the days and weeks ahead, and we will be watching to see if he unveils anything that feels like more than a band-aid.
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