Bernanke: Quantitative Easing Not in Play

WASHINGTON, DC-With baited breath, the world was waiting to see what Federal Reserve Bank Chairman Ben Bernanke would say at the bank’s annual summit in Jackson Hole, WY. The end-of-summer meeting has become an annual ritual for Fed watchers--and the Central Bank itself--by providing a venue for important policy pronouncements or just giving the watching world a clue as to what the Fed is thinking.

This year, the Fed is thinking the US economy doesn’t need any more stimulus--at least the monetary kind. The economy is still in the doldrums, Bernanke acknowledged—but he will wait to see if more balance sheet policies are necessary. “The unemployment rate remains more than 2 percentage points above what most FOMC [Federal Open Market Committee] participants see as its longer-run normal value," he said, "and other indicators--such as the labor force participation rate and the number of people working part time for economic reasons--confirm that labor force utilization remains at very low levels. Further, the rate of improvement in the labor market has been painfully slow.”

Indeed, he added, in light of the arsenal that the Fed has thrown at the economy to date, “we might have hoped for greater progress by now in returning to maximum employment. Some have taken the lack of progress as evidence that the financial crisis caused structural damage to the economy, rendering the current levels of unemployment impervious to additional monetary accommodation.” Bernanke said he doesn’t believe that to be the case, at least based on the evidence at hand. The reasons for the slow growth, he concluded, are unusually stiff headwinds, including the housing sector and fiscal policy at the federal, state and local levels.