Bernanke Speaks Without Saying Much

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.

Bernanke’s comments arrived shortly after the government announced that GDP growth in the second quarter was slower than initially estimated. The economy expanded at a real annualized 1.0% rate vs. the earlier 1.3% estimate.
The net result: slower growth and a central bank that’s inclined to let the status quo in monetary affairs roll on. That suits some just fine. But some analysts beg to differ. “Economic performance is clearly subpar, and from that standpoint the case for some sort of further economic-policy assistance is just being made by the poor performance,” says Keith Hembre, chief economist at Nuveen Asset Management.
Economist Mark Thomas notes that “financial markets are likely to be disappointed by the lack of specific news from the Fed, and they may now be looking for additional action at the Fed meeting in September.” He goes on to warn:

But I don’t think financial market participants, or anyone else for that matter, should get their hopes up. If the incoming data change substantially, in particular if signs of deflation emerge, the Fed might be prompted to action. But short of that, they will continue in the wait and see mode — a mode that so far has left them behind the emerging economic conditions.

For good or ill, Nicholas Blanchard at Modeled Behavior thinks that the real plans of the Fed (or the lack thereof) will be revealed next month:

We will have to wait until the next Fed meeting to see Bernanke’s “real” intentions on monetary policy. Will he steer the committee into a more aggressive stance? The stock market is very slightly up on the speech, so maybe Wall Street knows something that I don’t…but I just can’t see how an aggressive policy move is in the cards.

Meantime, no one’s going to confuse the windup to this summer with last year.