Bernanke’s View of the Market, As It Stands Right Now

WASHINGTON, DC-The Federal Reserve, as it is increasingly doing, did not hold the market and business industry in suspense about what chairman Ben Bernanke would say this year at Jackson Hole. Specifically, that the Fed had little offer in additional stimulus and that the recovery, while weak, is still moving forward.

Bernanke did not surprise, therefore, as he delivered his remarks Friday morning. He did, though, sound more optimistic than might be expected, given the events of the last few weeks. “I am fully aware of the challenges that we face in restoring economic and financial conditions,” he said in the much-anticipated speech. “With respect to longer-run prospects, however, my own view is more optimistic.” 

Restorative forces are at work, he said, and will continue to promote recovery over time. “Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis,” he explained. “These two features of the downturn, individually and in combination, have acted to slow the natural recovery process.”

Reading between the lines of his comments, though, one can conclude that the Fed feels it has tried everything in its toolkit. The Federal Open Market Committee will keep the federal funds rate at its current low levels for at least two more years, he noted, and will continue to discuss the relative merits and costs of using its additional tools.

Meanwhile legislative action and initiatives could go a long way to relieving some of the pressure on the economy, he concluded.

After a near mortal fight over the debt ceiling, a plea for legislative relief is not something the market wants to hear right now. “It may be that that is our best option for short-term relief,” Peter Cohan of Peter Cohan & Associates tells GlobeSt.com. “After all, QE2 had very little impact--I can’t imagine the Fed trying that again.” Cohan, though, is dubious that anything other than a boost in organic growth will assist the commercial real estate economy. “Growth in commercial real estate market is predicated on businesses needing more space because they are expanding. The economy grew 0.7% in the first six months so I don’t anticipate that happening in the medium term.”