By Caroline Baum
Federal Reserve Chairman Ben Bernanke didn't unveil any new initiatives in his opening remarks to the annual Jackson Hole economic symposium today. Nor did he put the kibosh on future Fed actions to goose the economy and reduce unemployment.
Instead, he took us on a stroll down memory lane, reviewing the Fed's actions -- especially the implementation of "nontraditional policy tools" -- in response to the 2008 financial crisis and bursting of the housing bubble. Here is what he said in a nutshell:
-- The Fed's expansion of its balance sheet (quantitative easing) and maturity-extension program helped ease financial conditions and had an "economically meaningful" effect.
-- Forward guidance about the path of the federal funds rate affected policy expectations and lowered long-term interest rates.
-- The magnitude of the effect of non-traditional policies is hard to quantify (see econometric model instead).
-- Non-traditional policies have costs as well as benefits.
-- The "hurdle for using nontraditional policies should be higher than for traditional policies."
So what will the Fed do?
Economic prospects are "far from satisfactory," Bernanke said, even though housing is showing signs of life, and retail sales and manufacturing picked up in July. Labor market stagnation is a "grave concern." (Is there any other kind?) And the issues ailing the economy aren't structural, in his view.
That means another kick in the pants is likely. While Bernanke said the "hurdle" for non-traditional policies may be high, the bar for additional action seems to be set quite low. The minutes from the Fed's July 31-Aug. 1 meeting state that additional steps "would likely be warranted pretty soon" absent a "substantial and sustainable" improvement in the economy.
There are only two more meetings before the November election: Sept. 12-13 and Oct. 23-24. The Fed would probably prefer to stay out of the headlines in late October, which means September would be the most logical time to announce something beyond the existing maturity-extension program.
Many policy makers say they want to wait to see more economic data. Of course, there are always more data. What they mean is, they want to make sure there's no major improvement in the economy before they take additional steps because every action will require an equal and offsetting counter action some day.