In the Federal Reserve’s first press conference in 32 years, Chairman Ben Bernanke today announced…nothing. He didn’t exactly say nothing. But he basically said that despite the weak economy, he’s decided to do nothing. And the more he talked, the more it sounded like he intends to keep doing nothing for the foreseeable future.
It was like the Seinfeld of press conferences.
To summarize: Bernanke thinks unemployment is way too high, and he doesn’t see any worrying evidence of inflation, but he seems content—resigned is probably a better word—to maintain the status quo with monetary policy. The last time a Fed chairman held a news conference, Paul Volcker announced policy changes that ultimately launched a war on inflation. Bernanke sounded like he’s done fighting. He’s going to finish his efforts to expand the money supply through “QE2” in June, and then he’s going to stop trying to accelerate the economy.
I’ve heard him talk like this before. But it’s still a bummer. It sounds like we’re in for a long stretch of slow job growth. And that’s if everything goes according to plan.
This was Bernanke’s first-ever news conference, and it felt like any normal news conference, except that he sat at a formal desk that looked like he might have hauled it in from his office, and that he spoke with the cautious precision of a man who knows a verbal slip-up might crash the futures markets in Siberian grain.
I didn’t get to ask my question about why Bernanke is failing to fulfill his responsibility to maximize employment, much less my follow-up about fiscal stimulus and Washington’s current mania for spending cuts, but he basically answered them in his responses to other journalists. (What do I have to do to get called on, write a slavishly laudatory end-of-the-year profiles of the guy?)
Bernanke acknowledged that high unemployment rates are “very distressing,” but he obviously feels like he’s done all he can to lower them since the financial implosion of 2008. “We’re digging out of a very deep hole,” he said.
It’s true that he’s given the economy unprecedented amounts of gas, and he still isn’t ready to step on the brakes. And he said he doesn’t see evidence that recent spikes in gas prices reflect underlying inflation pressures. He nicely parried one questioner’s suggestion that his loose-money policies had weakened the dollar, pointing out that the dollar got artificially strong during the financial meltdown when scared investors parked their money in Treasuries, and that the weakening of the dollar since was just a natural unwinding of that safe haven effect. Maybe I was reading too much into his answer, because the Chicken Littles who have predicted seventy of the last zero collapses of the dollar drive me nuts, but I thought I caught an undertone of: Would another financial meltdown make you happy?
But while Bernanke is clearly unenthusiastic about tightening monetary policy—yet—he also suggested that additional loosening through a QE3 would be unlikely to relieve unemployment significantly, and could hurt the job market if it triggered higher inflation expectations. “The tradeoffs are getting less attractive,” he said.
Bernanke is more of an inflation dove than an inflation hawk, but it was interesting to hear him say that he’ll do “what’s necessary” to ensure price stability. He didn’t say that he’d do “what’s necessary” to reduce 9% jobless rates. And there is stuff he could try to do, even with interest rates as low as they could go. He could stop paying banks interest on their reserves, so they’d be more likely to loan them out instead. He could even try to spark up a little inflation—through words or more quantitative easing—to pull money out of corporate coffers and bank accounts. Personally, I suspect that the wonderful New York Times economics writer David Leonhardt may overestimate the job-creating effect of an even longer-term commitment to keep interest rates at zero, but he could try that, too.
He just doesn’t want to. And he doesn’t seem to want Congress to do anything, either.
On the fiscal side, he did not call for more short-term stimulus, and he didn’t seem to think the modest short-term spending cuts that President Obama and Congress agreed on this month would do much anti-stimulus damage. He did suggest that more aggressive short-term austerity could conceivably be a problem, but his main push on the fiscal side was for a deal to address long-term deficits. Which would be a nice thing to have, but wouldn’t put anyone to work right away.
So, to recap: No monetary stimulus coming. No fiscal stimulus wanted.
Translation: Good luck, America! You’re on your own.