–Nontraditional Tools Have/Continue To Be Effective In Easing Conditns
–Economic Situation Obviously Far From Satisfactory
By Steven K. Beckner
JACKSON HOLE, Wyoming (MNI) – Federal Reserve Chairman Ben Bernanke
Friday reiterated the Federal Open Market Committee’s willingness to
provide additional monetary accommodation if necessary, but gave no
clear signal that action is upcoming.
In making an extensive evaluation of the potential benefits and
costs of using the Fed’s “nontraditional” policy tools, Bernanke seemed
to put slightly greater weight on the benefits. But he emphasized the
“uncertainties” involved in making further use of large scale asset
purchases and other measures in an eagerly awaited keynote address
opening the Kansas City Federal Reserve Bank’s annual symposium.
Bernanke also stressed the limits of monetary policy, saying that
by itself the Fed cannot overcome all the economy’s ills in the absence
of other kinds of economic policy. He seemed to have in mind
particularly fiscal policy, which he identified as one of the major
“headwinds” inhibiting economic growth.
Although the economy has improved in a number of areas, Bernanke
said it is still “far from satisfactory.”
Returning to the kind of Okun’s Law observations he was making
earlier in the year, Bernanke warned that unless the pace of economic
growth accelerates there is likely to be little further progress in
reducing unemployment.
And so the Fed chief clearly indicated a readiness to ease further
— either through asset purchases or changes in communication — without
giving any sense of the timing — as a Sept. 12-13 FOMC meeting rapidly
approaches and the Nov. 6 presidential election approaches.
Bernanke made no mention of the election.
While estimates of their effectiveness are uncertain, he said past
asset purchases programs (“quantitative easing”) have made the economy
stronger than it otherwise would have been and said Q.E. “can continue
to work.”
In toto, the remarks are likely to be read as reinforcing the
strong easing bias enunciated at the Aug. 1 FOMC meeting but not as a
definite signal of impending action on Sept. 13.
Bernanke concluded by echoing the Aug. 1 FOMC statement, while
adding a few qualifiers: “Taking due account of the uncertainties and
limits of its policy tools, the Federal Reserve will provide additional
policy accommodation as needed to promote a stronger economic recovery
and sustained improvement in labor market conditions in a context of
price stability.”
After reviewing what the Fed has done since the outset of the
financial crisis — particularly the nontraditional policies it has
adopted since reaching the zero lower bound for the federal funds rate
— the chairman said “It seems clear, based on this experience, that
such policies can be effective, and that, in their absence, the 2007-09
recession would have been deeper and the current recovery would have
been slower than has actually occurred.”
Bernanke said “estimates of the effects of nontraditional policies
on economic activity and inflation are uncertain, and the use of
nontraditional policies involves costs beyond those generally associated
with more-standard policies.”
“Consequently, the bar for the use of nontraditional policies is
higher than for traditional policies,” he continued.
“In addition,” he went on, “in the present context, nontraditional
policies share the limitations of monetary policy more generally:
Monetary policy cannot achieve by itself what a broader and more
balanced set of economic policies might achieve; in particular, it
cannot neutralize the fiscal and financial risks that the country faces.
It certainly cannot fine-tune economic outcomes.”
“As we assess the benefits and costs of alternative policy
approaches, though, we must not lose sight of the daunting economic
challenges that confront our nation,” he said. “The stagnation of the
labor market in particular is 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 many years.”
-more-
** MNI **
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