Federal Reserve Chairman Ben Bernanke spoke again on Tuesday, but you didn’t miss much. He still thinks unemployment is way too high, and he still has no plans to do anything about it. His primary message didn’t change since the last time he spoke: He’s decided to do nothing, now and for the foreseeable future.
The news from Bernanke’s speech to the International Monetary Conference in Atlanta will probably be his odd confrontation with J.P. Morgan CEO Jamie Dimon, who had the chutzpah to suggest that the Fed is making a bad economy worse by over-regulating Wall Street. (Remind me: Who collapsed the economy in the first place?) But buried beneath his Feddish verbiage, Bernanke did issue an interesting warning to Congress: Don’t make make a bad economy worse with big short-term spending cuts. He may be a Republican, but he’s no Tea Party Republican.
Bernanke didn’t call for more fiscal stimulus, but he strongly cautioned against drastic anti-stimulus, noting that “a sharp fiscal consolidation focused on the very near term could be self-defeating.” He didn’t quite come out and say that Washington’s current mania for short-term deficit reduction makes no sense — his job description doesn’t call for much come-out-and-saying — but he came close.
Generally, Bernanke has been reluctant to give advice on fiscal policy, especially after he fought to preserve the Fed’s independence from legislative interference on monetary policy. (He did put Congress on notice in March, when he cautioned that the GOP’s deep-cutting budget could cost “a couple hundred thousand jobs.”) But he showed his Keynesian colors on Tuesday, noting that spending cuts and layoffs by cash-strapped state and local governments are holding back the recovery, while the bipartisan payroll tax cuts passed in December 2010 are helping. He also said the economic “impetus” provided by President Obama’s 2009 stimulus package is waning as the spending peters out.
But the main point of this section of his speech was that the U.S. deficit problem is a long-term problem, and it requires a long-term solution; during the Q&A, he pointed out that most of the short-term deficit is the result of the worst economic crisis since the Great Depression. He argued that a credible long-term plan to restore a sustainable fiscal trajectory would be great, and could even boost the economy, but that a short-term fiscal contraction could “undercut the still-fragile recovery.”
It’s hard to imagine that anything Bernanke said would cool his party’s current passion for rolling back federal spending. He could probably convene the next meeting of Republicans Against Spending Cuts Now in a phone booth. But maybe his warning will build momentum for another payroll tax cut – politicians like that kind of stimulus.
As for monetary stimulus, sorry. Don’t hold your breath waiting for QE3. Bernanke’s done, barring a double-dip recession. He’s going to keep letting the economy ride, even if the ride has been no fun.