Posted on 08/31/2012 8:28:26 PM PDT by Free ThinkerNY
WASHINGTON -- A strong signal Friday from Chairman Ben Bernanke that more economic stimulus is on the way puts the Federal Reserve squarely in the middle of the fight for the White House in November’s presidential election.
Speaking at the Fed’s annual retreat in the Wyoming resort city of Jackson Hole, Bernanke offered a spirited defense of his unconventional efforts over the past three years to stimulate economic activity through the purchase of government and mortgage bonds. And he seemed to signal that more steps would be taken soon.
“As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation,” Bernanke said. “The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.”
Financial markets took those words as a sign of new action, probably as early as the Fed’s next meeting of the rate-setting Federal Open Market Committee on Sept. 12-13.
“The odds of the Fed doing something in September are greater today than they were yesterday,” said Mark Vitner, senior economist for Wells Fargo Securities in Charlotte, N.C. “It seems clear to me that they’re not focusing on the unemployment rate but the persistently high unemployment that is likely to do long-term damage to the economy.”
(Excerpt) Read more at miamiherald.com ...
It’s actually pretty simple. Bernanke’s doctoral thesis was on The Great Depression and what the Fed did from a monetary policy standpoint. About now in the Depression The Fed tightened the money supply which sent the US into a further deflationary tailspin and set off a deeper recession leg down. Bernanke’s research showed that it was this tightening that caused the “double dip” as taking money out of the system is what you don’t do when demand is so high. Currently monetary velocity remains extraordinarily low which indicates demand is still exceptionally high. Bernanke’s thinks we are in the same boat as we were in the Depression and he has vowed to not repeat the same mistake. He will be as accommodative to the money supply as possible. Prior to now he has indicated a size limit of this accommodation (QE1 and 2 were ~700B). The new policy is that it will be “open ended”.
Actually Bernanke thinks he is doing exactly that. Learning from the past. His doctoral thesis was on the Fed monetary mistakes during the Great Depression.
Probably only if Obama starts to lead in the polls.
If Romney looks like a sure thing the Fed may decide not to ease.
As an aside, I'm not sure how Bernanke feels about Romney saying he wants to audit the Fed or how this affects his QE decision.
I firmly believe Bernanke is an apolitical animal. He will keep the QE open because he thinks it’s the right thing to do.
It’s not so much that he’s political. But if he sees Romney ahead and economic signs picking up as a result it will impact his decision IMO.
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