Ok, Jackson Hole was apparently not named after Andrew Jackson, who declared war on the Bank of the United States, but there’s still something ironically amusing to me about the Federal Reserve Chairman giving a speech about the tanking economy in a place called Jackson Hole.
Anyway, here are the key passages that strike me in my first — and I hope only — read of Bernanke’s speech today, The Near- and Longer-Term Prospects for the U.S. Economy.
The clear takeaway: the Fed is not doing anything else of substance unless the economy deteriorates markedly from here. But with so few jobs being added, the economy is actually deteriorating daily. This is the new status quo, and the Fed accepts it. They’re going to sit this one out and wait for the “fundamental strengths of our economy” to “reassert themselves.” UPDATE: My favorite blogger Calculated Risk is somewhat more upbeat about the possibility of some type of expansionary fiscal policy being announced at the two-day Fed meeting in September.
All of the bulleted points here are direct quotations from Bernanke; any clarifications from me are in brackets:
- although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years.
- The actions to stabilize the financial system [in 2008 and 2009] were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus. But notwithstanding these strong and concerted efforts, severe damage to the global economy could not be avoided.
- Overall, the global economy has seen significant growth, led by the emerging-market economies. In the United States, a cyclical recovery, though a modest one by historical standards, is in its ninth quarter.
- Importantly, economic growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment
- Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time–with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines–the rate of new home construction has remained at less than one-third of its pre-crisis level. [I think he stole that whole sentence from someone, maybe even me.]
- the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. [But none of them will be used at this time.]
- we expect inflation to settle, over coming quarters, at levels at or below the rate of 2 percent, or a bit less, that most Committee participants view as being consistent with our dual mandate [to control inflation and maximize employment].
- Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if–and I stress if–our country takes the necessary steps to secure that outcome.
- This economic healing will take a while, and there may be setbacks along the way.
- In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow.
- most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.
- Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.
- Finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions.