Bernanke's Speech

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The Fed chairman's eagerly awaited speech at Jackson Hole was, as Gavyn Davies says, no more than a holding operation. I would have been astonished if he had outright promised more QE or other steps: this was not the occasion. Even so, the neutral tone was a bit more neutral -- a bit less friendly to renewed action -- than I had expected. He said that the current risk of falling into deflation is not "significant", partly because the public trusts him and the Fed to get it right. That seems just a little complacent. Of course, he says he is attentive and ready to change his mind, but still...

[T]he FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation. It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable.

Noted. Elsewhere Bernanke says that monetary conditions in the US are already loose.

To provide further support for the economic recovery while maintaining price stability, the Fed has also taken extraordinary measures to ease monetary and financial conditions... The decision [to resist passive tightening, by maintaining the size of the Fed's balance sheet despite maturing MBS] also underscored the Committee's intent to maintain accommodative financial conditions as needed to support the recovery. We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial.

How easy is policy, really? Scott Sumner is worth reading on this.


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