Friday, September 30, 2011

Bernanke Hints At QE3

Fed Chairman Ben Bernanke said today the very thing I hoped he would not say:
Federal Reserve Chairman Ben Bernanke on Wednesday signaled he is prepared to take more unconventional policy steps if the weak U.S. economy worsens too much.
Mr. Bernanke stressed the Fed is watching price trends very closely. “If inflation itself falls too low or inflation expectations fall too low, that would be something we’d have to respond to because we don’t want deflation,” Mr. Bernanke said in a question-and-answer session after a speech in Cleveland.
The Fed chief didn’t say he sees deflation — or a debilitating decline in prices — as a risk right now. Prices have actually been rising above the Fed’s 2.0% comfort zone in recent months. Mr. Bernanke said inflation expectations currently indicate that price increases will average around 2% over the coming years, which is where the central bank wants to see them.
Highlighting his concern over the economy’s weakness, however, Mr. Bernanke said the high unemployment rate was “a national crisis” that required attention from the White House and Congress.
“We’ve had close to 10% unemployment now for a number of years, and of the people who are unemployed, about 45% have been unemployed for six months or more. This is unheard of,” Mr. Bernanke said.
The Fed chief has shown a strong determination to do what is needed to fix a persistently weak economy.

Chairman Bernanke is the ultimate economic tinkerer. He, like many of his econometrician Monetarist neo-Classical economist colleagues believe they can control the direction of the economy by tinkering with things like money supply, interest rates, and reserve requirements for lenders. In fact in the speech referred to in the article, he chides China for not spurring more internal consumption and relying too heavily on exports. It is a rather arrogant statement for him to make, since he has shown himself incapable of doing anything right at the Fed. None of his forecasts have been accurate and when he has to rely on silly tricks like Operation Twist to “do something” you know he’s run out of ammo in the much vaunted Fed’s “suite of tools.” 
We at the Daily Capitalist continue to believe that the  Fed will be pressured to “do something” to solve the “unheard of” unemployment problem he refers to. And that will be the “unconventional policy” he refers to, or QE3, price inflation or no. 
Read it here:

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