[h=3]By JON HILSENRATH[/h]Federal Reserve Chairman Ben Bernanke offered a robust defense of the effectiveness of the central bank's easy-money policies in his Friday speech at the Fed conference in Jackson Hole, Wyo., and left little doubt that he is looking toward doing more to give the economy a lift at the Fed's next policy meeting in September.
Here is the Fed chairman's stand on two key issues in today's speech, from prepared remarks:
Associated PressFederal Reserve Chairman Ben Bernanke arrives for a dinner at the Jackson Hole Economic Symposium on Thursday night.
THE ECONOMY: Some market participants have been wondering if a run of moderately better economic data of late has changed the Fed's thinking about the economy. Mr. Bernanke left little doubt that he is still deeply dissatisfied with the outlook, describing the economic situation as "far from satisfactory."
He dwelled on stagnation in the labor market, describing high unemployment as a "grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for years." Moreover, he said, "it is important to achieve further progress, particularly in the labor market."
Importantly, the Fed chairman also says that the job market's weakness, to date at least, is the result of cyclical problems in the economy (that is, a lack of demand) and not structural problems (such as a mismatch between the skills people have and the skills employers are looking for.)
The Fed feels it can help address cyclical problems, but not structural problems. In other words, this is a problem where the Fed feels it can help. Of course, he also includes his "no panacea" caveat; Mr. Bernanke would love fiscal policy makers to take actions to support the economy and address long-run deficits. But he doesn't seem to see that as justification for inaction on his front.
The focus on labor-market stagnation is critical. The Fed has a dual mandate imposed by Congress to achieve price stability and maximum sustainable employment. Mr. Bernanke played down inflation risks, saying inflation has remained near 2%, "despite repeated warnings that excessive policy accommodation would ignite inflation." With inflation stable and unemployment unsatisfactorily high, Mr. Bernanke in effect lays out his legal argument for pressing on the monetary gas pedal harder.
The Fed chairman also repeats the central bank's policy statement from Aug. 1: "The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery." If Mr. Bernanke's economic outlook had materially changed since the Aug. 1 meeting because of some recently strong data, it wouldn't have made sense to repeat that statement. The fact that he did suggests the Fed's view on the economy hasn't improved much.
COSTS AND BENEFITS: Mr. Bernanke has said repeatedly that the Fed's decisions about how to use monetary policy depends on an analysis of the costs and benefits of different actions. His analysis, particularly of the Fed's controversial bond-buying programs, heavily emphasizes the benefits and plays down the costs. Two rounds of bond buying have raised overall economic output by 3%, he said, and increased payroll employment by 2 million jobs, he said his staff has estimated.
"A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks," he said.
He plays down the costs of these policies at many turns. To date they haven't damaged the functioning of markets in which the Fed operates—including mortgages securities and Treasurys, he said. It hasn't caused a surge inflation expectations, it hasn't caused a dangerous buildup in financial leverage, and the Fed's programs are more likely to make money for taxpayers than lead to large losses he said. Many of his critics will disagree with him on these points, but it is clear where he stands.
"The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out further use of such policies if economic conditions warrant," he says.
Maybe an unusually strong jobs report Sept. 7, a few days before Sept. 12 meeting of the Fed's policy committee could change the Fed's calculations. But taken together, the speech sounds a lot like Mr. Bernanke's closing argument in favor for more easing.
Write to Jon Hilsenrath at [email protected]
Here is the Fed chairman's stand on two key issues in today's speech, from prepared remarks:
Associated PressFederal Reserve Chairman Ben Bernanke arrives for a dinner at the Jackson Hole Economic Symposium on Thursday night.
THE ECONOMY: Some market participants have been wondering if a run of moderately better economic data of late has changed the Fed's thinking about the economy. Mr. Bernanke left little doubt that he is still deeply dissatisfied with the outlook, describing the economic situation as "far from satisfactory."
He dwelled on stagnation in the labor market, describing high unemployment as a "grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for years." Moreover, he said, "it is important to achieve further progress, particularly in the labor market."
Importantly, the Fed chairman also says that the job market's weakness, to date at least, is the result of cyclical problems in the economy (that is, a lack of demand) and not structural problems (such as a mismatch between the skills people have and the skills employers are looking for.)
The Fed feels it can help address cyclical problems, but not structural problems. In other words, this is a problem where the Fed feels it can help. Of course, he also includes his "no panacea" caveat; Mr. Bernanke would love fiscal policy makers to take actions to support the economy and address long-run deficits. But he doesn't seem to see that as justification for inaction on his front.
The focus on labor-market stagnation is critical. The Fed has a dual mandate imposed by Congress to achieve price stability and maximum sustainable employment. Mr. Bernanke played down inflation risks, saying inflation has remained near 2%, "despite repeated warnings that excessive policy accommodation would ignite inflation." With inflation stable and unemployment unsatisfactorily high, Mr. Bernanke in effect lays out his legal argument for pressing on the monetary gas pedal harder.
The Fed chairman also repeats the central bank's policy statement from Aug. 1: "The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery." If Mr. Bernanke's economic outlook had materially changed since the Aug. 1 meeting because of some recently strong data, it wouldn't have made sense to repeat that statement. The fact that he did suggests the Fed's view on the economy hasn't improved much.
COSTS AND BENEFITS: Mr. Bernanke has said repeatedly that the Fed's decisions about how to use monetary policy depends on an analysis of the costs and benefits of different actions. His analysis, particularly of the Fed's controversial bond-buying programs, heavily emphasizes the benefits and plays down the costs. Two rounds of bond buying have raised overall economic output by 3%, he said, and increased payroll employment by 2 million jobs, he said his staff has estimated.
"A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks," he said.
He plays down the costs of these policies at many turns. To date they haven't damaged the functioning of markets in which the Fed operates—including mortgages securities and Treasurys, he said. It hasn't caused a surge inflation expectations, it hasn't caused a dangerous buildup in financial leverage, and the Fed's programs are more likely to make money for taxpayers than lead to large losses he said. Many of his critics will disagree with him on these points, but it is clear where he stands.
"The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out further use of such policies if economic conditions warrant," he says.
Maybe an unusually strong jobs report Sept. 7, a few days before Sept. 12 meeting of the Fed's policy committee could change the Fed's calculations. But taken together, the speech sounds a lot like Mr. Bernanke's closing argument in favor for more easing.
Write to Jon Hilsenrath at [email protected]