Bernanke: No New Stimulus

 

In a speech this morning in Jackson Hole, Wyoming, Federal Reserve Chairman Ben S. Bernanke said that the economy is recovering and that the Fed would not take any immediate steps to boost short-term growth. Bernanke said he was “optimistic” about long-term prospects for growth and that “the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years.” But he acknowledged that the nation is hampered by “massive unemployment and an unsustainable federal debt” and indicated that the Fed might consider a boost to the economy in September when the Fed’s policy-making board (the Federal Open Market Committee) meets.

Bernanke did say that the recovery was “modest” and had been “disappointing” so far and that the Federal Open Market Committee has “marked down its outlook” for economic growth in the next few quarters. Indeed, data from the Commerce Department indicates that the US economy grew less than estimated, expanding at an annualized rate of 1% between April and March, down from a first estimate of 1.3%.

The Dow Jones Industrial average fell 200 points after Bernanke’s comments that the Fed would stay at the sidelines for now but then more than made up for the decline this afternoon.

Bernanke hinted that the US government does need to do more to stimulate growth. From his speech:

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.

“To achieve economic and financial stability, US fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time.

“As I have emphasised on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.”

The Fed has already said earlier this month that it will keep US short-term interest rates at the current low level of between zero and 0.25% until the middle of 2013. This announcement indicates its view that economic growth will not rise quickly enough in that period to increase wages and prices.

Bernanke gave his speech in a highly charged political climate, when Rick Perry and other Republican presidential candidates have sharply criticized the Fed’s policies and loudly voiced disapproval of new steps. Economist Paul Krugman has gone so far as to say Perry and others are pretty much “politically intimidating” the Fed into inaction and a state of “externally induced paralysis”:

Political opposition has already crippled fiscal policy; instead of helping to create jobs, the federal government is pulling back, acting as a drag on output and employment.

The Fed has lengthened the September meeting of the Federal Open Market Committee so it’s possible that a third round of the strategy of quantitative easing might be announced then. But is the Fed willing to stick out its neck to do so?

 

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Photo by snowlepard

30 comments

Grace Adams
Grace Adams5 years ago

Replacing some of our non-tariff regulatory burden with excise taxes designed to capture external costs might help.

Martha Eberle
Martha Eberle5 years ago

The first stimulus should have been much bigger, with the federal government creating jobs -- if that had happened, we wouldn't be slogging through mud right now with a 9% unemployment rate. And if Bernanke was without a job and income, he might be less cavalier.

Geoffrey Y.
Geoffrey Y.5 years ago

Stimulus has artifical effects such as QE1-2 but the market is able to undo in few weeks. QE was for economic not stock but 80% stock is all about psyclogy - human's feeling not reasoning. we need samll gov but a good one - unlike Clinton/Bush's careless unregulation. No one like Obama's heavy duty gov today. A leader has cross party vision with long vision would be able to lead the nation. No one is closer to the ideal one, then don't expect too much in 2012 but get ready in our life and back to the care, don't try to be popular in your family and workplace if you have a workplace, think more, read news with caution, do wisely.

Lori Ann Hone
Lori Hone5 years ago

Recall all Republicans!

Mike Chrissie
Mike Chrissie5 years ago

no that's stupid, we had 2 years of democratic total control and they failed, a repete, duh

Marilyn L.
Marilyn L.5 years ago

Vote out the Republicans and we will see some real change that will move our country forward.

Dale G.
Dale Graham5 years ago

Charley Reese has been a journalist for 49 years.
Politicians are the only people in the world who create problems and then campaign against them..
Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?
Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?
You and I don’t propose a federal budget. The president does.
You and I don’t have the Constitutional authority to vote on appropriations. The House of Representatives does.
You and I don’t write the tax code, Congress does.
You and I don’t set fiscal policy, Congress does.
You and I don’t control monetary policy, the Federal Reserve Bank does.
One hundred senators, 435 congressmen, one president, and nine Supreme Court justices equates to 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.
I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.
I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don’t ca

Suzanne H.
Suzanne H.5 years ago

What's the point of another Stimulus? The R And T party will fillabuster again...Remember the last time?........

Mike Chrissie
Mike Chrissie5 years ago

this guy is a failure along with obama, neither have been leaders

Barbara S.

It looks as though someone has spiked his tea... and he's afraid of a cowboy-wannabe Texan who is running for President. Oh, my...