Fed Chairman Bernanke says he understands the nation’s economic pain. Speaking earlier at the Fed’s Jackson Hole conference, he also explains that “monetary policy must be responsive to changes in the economy and, in particular, to the outlook for growth and inflation.” But he downplays the prospects for additional stimulus. “Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view…” This despite his observation that “the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.” Quite true, but apparently those tools will be kept in the shed for the foreseeable future.
Daily Archives: August 26, 2011
Inflation (And Bernanke) Expectations
The market’s inflation outlook is holding steady again, but for how long? The implied inflation forecast, based on the yield spread between the nominal and inflation-indexed 10-year Treasuries, was 2.1% yesterday. That’s roughly where it’s been for the past week. It’s also down from 2.6% in early April. But we’re still a long way from the 1.5% at this time last year. What might be the next catalyst that moves the current inflation forecast — up or down? Fed Chairman Ben Bernanke’s speech later today is first on the list.