Bernanke's inaction:Stock investors may have been briefly underwhelmed, but Ben Bernanke was right not to promise new easing in his speech in Jackson Hole on Friday. Aside from its likely ineffectiveness at juicing the US economy and its stubbornly weak job creation, the Federal Reserve chairman faces dissent at the Federal Open Market Committee. That’ll make the now-extended September meeting a new focus for markets.
Markets had rallied a bit on hopes that Bernanke would announce more Fed bond-buying, as he did at the same event last year. But most analysts felt, rightly as it turned out, that his options were more limited now. The last round of quantitative easing, known as QE2, was marginal even in the minds of some of its supporters at the Fed, and inconclusive at best in its impact. And the FOMC’s August 9 promise — that it would keep interest rates ultra-low well into 2013, with only the mildest of caveats — already attracted dissent from three of the 10 committee members who voted.
One of the dissenters, Philadelphia Fed President Charles Plosser, even stole a bit of Bernanke’s thunder by going on the record shortly before the chairman’s speech began to say further easing wouldn’t help the struggling economy. Bernanke was duly bland on monetary policy, though he noted the weakness of the economic recovery, expressed concern about long-term unemployment, and sensibly suggested that fiscal policy — and the process by which it is decided in Washington — needed improvement.
All that is not to say the Fed chairman won’t want to deploy more monetary weaponry at some point. But it does underline the growing scepticism he faces even within the FOMC — not to mention in Congress. That may explain why he extended the next meeting from one day to two: It will now run September 20 to 21. That committee, rather than a set-piece speech, is probably the right place to make policy anyway. But Bernanke also needs to keep as many of his colleagues on side as he can.
Inaction may well be the best policy next month as well, even if the Fed boss itches to do more. Either way, with a shortage of momentum in the economy and markets, Bernanke’s much-anticipated speech in the mountains may only have succeeded in pushing the market’s microscope away from monetary policy for a few weeks.
