Bernanke on How the Fed Has Changed
A sag in growth and a slowdown in job creation apparently haven’t shaken President Obama and Federal Reserve Chairman Ben Bernanke’s faith that the economy doesn’t need any more help, above and beyond what they’ve already offered.
That was clear from comments the two most powerful men in the economic world offered separately on Tuesday, the first for each man since Friday’s disappointing report that the economy added just 54,000 net jobs in May. The practical and unsurprising result is that the nearly 14 million Americans looking for work can expect the summer to pass without so much as an attempt from Washington to inject a fiscal or monetary stimulant into the job market.
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In case you’re scoring at home, nearly six months have passed since either the president or the Fed chair has tried to accelerate efforts to boost the recovery. Obama has been content to sing the stimulative praises of the tax deal he reached with Republicans in December, which included a temporary reduction in payroll taxes, while Bernanke has stayed the course on a $600 billion asset-buying plan of quantitative easing, known as QE2.
Both have since resisted calls for further measures, insisting the recovery was on track. Meanwhile, oil prices spiked, wiping out the benefits from the payroll tax cut in the process, and Japan’s earthquake disrupted global trade. First quarter growth registered 1.8 percent, less than half the level analysts hoped for. Job growth ran strong for three months before diving in May along with manufacturing activity.
On Tuesday, Obama said he was concerned the economy was “not producing jobs as fast as I want,” but also said he was “not concerned about a double-dip recession.” He offered no new proposals to boost growth.
Bernanke, in Atlanta, noted “the jobs situation remains far from normal” but said he expects hiring to pick up “as growth strengthens in the second half of the year.” He did not raise the prospect of a third round of quantitative easing, and his core economic prescription was for lawmakers to spread budget-balancing measures over a long time period in order to minimize impacts. Analysts at Barclay’s Capital pronounced the comments a sign that “the Fed would need to see significant slippage on its dual mandate and a reemergence of deflation risks before considering the need for further stimulus.”
Perhaps Bernanke and Obama are pulling a daredevil stunt, exuding confidence when investors and job creators lack it, and leading nervous markets in a full-throttle jump over a deceptively narrow pit in the recovery.
But there’s another possibility here, too, and it should worry the White House and the Fed just as much. Perhaps the economy has hit a canyon, and it needs fiscal or monetary help to bridge it. In that case, the president and the chairman aren’t Evel Knievel, roaring through the sky. They’re Wile E. Coyote, running off the ledge.
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