Tuesday, August 30, 2011

Bernanke's Quiet Speech

Just before the storm blew through here, Federal Reserve chairman Ben Bernanke delivered a key address out west in Jackson Hole, Wyoming, on Friday. This was the venue in which Bernanke introduced QE2 last year, and with the economic recovery slowing, expectations were high that he'd make a similar move this year. Instead, Bernanke announced that the Fed would do nothing.

Why didn't he announce any action? There are a couple of theories. For one thing, banks and corporations are flush with cash right now; the economy is not so much seeking more liquidity as it is additional demand. Another is that Bernanke flooded the economy with money via QE2 at a time when we were concerned about the possibility of deflation, and he was willing to push more toward inflation at that time. Now Bernanke is more concerned about keeping inflation below the Fed's target level of 2 percent.

Bernanke did say that he would tack on an extra day to the Fed's upcoming September policy meeting. It's been supposed that he needs this time to bring the other Fed governors to a consensus regarding how to move forward on the economy. So that should be a meeting to watch.

No comments:

Post a Comment