“It is clear the recovery from the crisis has been much less robust than we had hoped,” Federal Reserve Chairman Ben Bernanke said at early this morning at a banking conference in Jackson Hole, Wyo. Bernanke also admitted that financials and housing remain brutalized in the wake of the subprime mortgage crisis.
But in prepared remarks, he also made the claim that he is not concerned about the pace of economic recovery. Bernanke spent considerable time on “positive developments” in the economy, including a 15% uptick in manufacturing and the fact that “households also have made some progress in repairing their balance sheets.”
You can read the full text of the speech from the Fed chairman on the Federal Reserve’s website. But the gist is that while the short term remains rocky, Ben Bernanke thinks things still are improving and there is no cause for alarm.
But the so-called “restorative forces” that Bernanke cited don’t appear to be convincing investors that things are sunshine and roses. The market gapped down sharply after the speech was released and Ben Bernanke took the podium in Jackson Hole.
Perhaps it was his admission that some problems in the American economy are just beyond the superhero powers of the Federal Reserve. Consider his admission that “most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.”
Or maybe it was the fact that even as he tried to signal the “all clear,” he painted a rather gloomy picture. For instance, with opening lines like these (and bold for emphasis added):
“As I mentioned earlier, the recent data have indicated that economic growth during the first half of this year was considerably slower than the Federal Open Market Committee had been expecting, and that temporary factors can account for only a portion of the economic weakness that we have observed. Consequently, although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters.”
It also could be that some folks were hoping for something — anything — to prove Bernanke was taking the sluggish economic recovery seriously and looking to correct the recent sharp decline in equity prices. However, the speech also included no commitment to further quantitative easing, or a so-called “QE3.” There were vague allusions that “the Federal Reserve will certainly do all that it can to help restore high rates of growth and employment,” but little details on how to achieve those difficult goals.
The market often is a bit too harsh on Bernanke, in my opinion, considering the challenging task he faces. The dual missions of keeping inflation low and employment high are a difficult mandate — and perhaps even more so because many people are conflicted on whether inflation or deflation poses a bigger risk.
But the market was looking for something of substance from the Fed chairman today and got next to nothing. There were a lot of platitudes about short-term weakness and prospect of a long-term recovery, but all in all, the Jackson Hole speech amounted to Bernanke sticking to the script and reinforcing his faith in the status quo.
Unfortunately for investors, the status quo hasn’t been very pleasant for the last several weeks. And that might not change anytime soon.