The Fed will ease its monetary policy "if necessary" for growth. This is the incoming message from Ben Bernanke. In reality, reading the words of the Fed president, it seems that the intervention of the most powerful central bank on the planet is needed: the real estate market is still recovering, Europe's debt crisis is still acute and the fiscal cliff (the increase in taxes and the simultaneous spending cuts that will take place between the end of 2012 and the beginning of 2013), even more so the "stagnation of the labor market" represent real "headwinds" for the economy which need to be remedied. But how?
The Fed chairman, speaking at Jackson Hole, did not lay his cards on the table. To the great initial disappointment of the markets which had mistakenly deluded themselves that time X had struck. Then Wall Street, having overcome the initial shock, resumed the upward path: in the end, it was thought, it is already very that Bernanke has not renounced the past policy but, on the contrary, has pledged to go ahead on the path already traced, if necessary. A bit like Mario Draghi did at the end of July, declaring that he was ready "to do what is necessary to save the euro". In short, there is a method behind the policy of announcements and mysteries that has united Bernanke and Mario Draghi over the last few months.
It wasn't so obvious that Ben would confirm his strategy by helicopter, moreover until 2015, when the new appointments to the US central bank will take effect. We must not forget that the Fed president took to the field a few hours after the nominations of Mitt Romney and Paul Ryan at the Republican Convention in Tampa. In that meeting, the presidential candidate and Ryan himself head-on attacked the Fed, which the "tea parties" want to downsize, the monetary policy of recent years (to be canceled with a return to a sort of gold standard) and the same person as Bernanke, "traitor" to the Republican cause in favor of Barack Obama for having prevented the collapse of the federal state with a policy of constant injection of liquidity.
In this context, the Jackson Hole speech first of all served to reiterate that the Fed, at least as long as Bernanke will lead the institution, does not intend to change course. The quantitative easing that the Fed has already implemented on two occasions must therefore be defended. "It has helped stock markets recover, significantly lowered Treasury rates and provided significant relief to the economy," Bernanke said, noting that monetary easing has also mitigated deflationary risks. Hence the easy prediction that the central bank will still play the card of new purchases of federal "paper" and also of private sector issues. Not now, though. For two reasons.
First, because the system doesn't shine but doesn't sink. The latest data on GDP, on the housing market and on the trend of the economy (but not of employment) show that the USA is still afflicted by a low-grade fever but does not run mortal risks, unless the political tug-of-war, a "thud" from Europe or the precipitation of the Iranian crisis do not accelerate the involution of the international situation. Better prepare for the worst, but without firing the cartridges.
Second, Ben Bernanke has agitated the hypothesis of "unconventional policies". Something more and different than simple quantitative easing. Bernanke was no longer explicit in the foothills of the Jackson Hole mountains, a stone's throw from the Yogi Bear den. But in recent days circles close to the Federal Reserve, including Mohamed El Erian of Pimco (one of the advisors most listened to by Cghristine Lagarde at the Monetary Fund) have suggested the hypothesis that the Fed could adopt the nominal growth target, i.e. setting a target for GDP growth gross of inflation regardless of the inflationary threat which, as he reiterated yesterday, Bernanke does not believe. It would be a Copernican breakthrough for the central bank. In addition to defending the purchasing power of the currency and protecting employment (a role that belongs to the Fed, not the ECB), the federal bank would be ready to broaden its range of action to include growth, thus encroaching on one of its own of politics. In the belief that politics, paralyzed by vetoes between the White House and Congress, does not know how to face problems with the necessary energy.
In short, the exact opposite of what the republican right is asking for, convinced that the problems of capitalism arise from an excess of intervention by the regulators, rather than from an alleged timidity. Of course, Bernanke did not arrive at that much. But he could do so in the face of the risk, for example, that the fracture on the fiscal cliff will cause 6-8% of US GDP to disappear, with serious damage to consumption.
In this way, the president of the Fed risks assuming a political role, moreover (ironically) in the democratic field, despite the fact that Bernanke sits at the Fed thanks to the choice of George W. Bush. But it is certainly not his fault if the Republicans, anticipating the decision to remove Bernanke himself in case of success, objectively linked the fate of the banker's banker to Barack Obama. The latter will be elected only if the economy gives clear signs of that recovery which is in the hands of Bernanke's choices. It doesn't take long to predict that “non-conventional measures” will be one of the key themes of the autumn.
Read Ben Bernanke's full speech in Jackson Hole.
