Hey, Ben Bernanke! Either Tell Us How We're Going to Grow, or Do Something -- Now
The most-anticipated speech by Ben Bernanke since the zenith of the financial crisis should leave any unemployed person feeling cold. Where will economic growth come from? Bernanke had no answers.
The annual Jackson Hole powwow that the Kansas City Fed organizes is often a forum for testing out new theories or mulling big thoughts about central banking, but all eyes were rightly on Bernanke:
[F]iscal impetus and the inventory cycle can drive recovery only temporarily. For a sustained expansion to take hold, growth in private final demand--notably, consumer spending and business fixed investment--must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.Huh?! To me, the key word in this remark is "drive" and it strains the most credulous minds to think that business investment or consumer spending is "driving" anything. They might -- might -- be sustaining an anemic level of growth. They might be ensuring that a contraction is merely a stagnation. They are not "driving" anything right now. I've warned in the past about defining deviancy down, the current tendency of policymakers to tell us that what we're experiencing is normal.
I've also written about how central bankers, no matter what they say about employment, really fret mostly about rising inflation -- and leave employment concerns in the back seat. They will find a way to worry about higher prices, and when all else fails, they'll willfully disregard the facts. You certainly won't get any explanation for how
Central bankers can always cite inflation expectations as a kind of black box for their worries. No inflation now? Well, the bond markets tell is there will be more inflation in the future. Now the Fed is trying to tell us that inflation expectations don't portend deflation or further disinflation. So we get this from Bernanke:
With inflation expectations reasonably stable and the economy growing, inflation should remain near current readings for some time before rising slowly toward levels more consistent with the Committee's objectives. At this juncture, the risk of either an undesirable rise in inflation or of significant further disinflation seems low.Take a look at this nice chart from Paul Krugman showing how inflation expectations have fallen a full percentage point this year, to 1.4 percent, well below the Fed's goal of roughly two percent. And make no mistake: if inflation expectations had risen by the same amount, hordes of Fed officials would be screaming about inflation getting out of control. No other way to put it: the Fed has a double standard here, and no explanation as to why that is the case.
After this speech, it's clear that the Fed sees no urgency whatsoever to act more forcefully. Things are going to have to get worse -- a lot worse, apparently -- before the central bank decides to do its job.
Related:
- The Fed: Absent a Double-Dip Or Deflation, We'll Hang The Economy Out To Dry
- Criticism of Fed On Quantitative Easing Are Wrong: We Need More
- Fed To Maintain Its Balance Sheet - But Not Because The Economy Is Slipping
- Fighting With Itself, The Fed Does Damage to Its Credibility As Economy Suffers
- Bernanke Gives Us the Evidence For Further Action, But No Clear Endorsement Of It
- Draw Ben Bernanke Out on the D-Word: Is Deflation Near