In a speech today in Jackson Hole, Wyo., Fed chairman Ben Bernanke said that the economy is a lot worse since the last time central bankers got together for their annual nature retreat and economic conference. Growth hasn’t picked up enough, the unemployment rate is still, um, excessive, and banks are still having trouble lending money. Plus, countries are having a much harder time managing the debt they’ve been racking up.
So what are Mr. Bernanke and his cronies at the Fed going to do?
First, they’re going to keep buying mortgage-backed securities to keep long-term interest rates low in an effort to pump more money into the economy. They will do this by printing more money. Second, the Fed could tell investors that interest rates will remain close to zero for a very long time, which would again lower long-term interest rates. Finally, they could stop paying banks so much money for parking their cash in the Federal Reserve, so that they start lending that money.
As is typical, Bernanke didn’t say for sure whether the Fed would actually do any of this: “At this juncture, the Committee has not agreed on specific criteria or triggers for further action.” Nevertheless, he said that the big concern is deflation, and the Federal Open Market Committee is going to “do all that it can to ensure continuation of the economic recovery.”
The stock market initially declined a little on Bernanke’s wishy-washy speech, but the major indices were all lately moving higher in midday trading, suggesting that the speech did not, in the eyes of investors, obviously portend an epic collapse in the U.S. economy.