Today’s TV coverage from Jackson Hole, WY started with Ben Bernanke walking around with Stan Fischer, his thesis advisor and close friend at MIT.
Then, we got the release of the transcript. The markets sold off, as many expected.
What did I learn from reading through the transcript?
(1) Chairman Bernanke thinks that the Fed buying long-term securities after bringing down the Fed’s short-term interest rates did have meaningful effects on the U.S. economy. He stated that the 10-yr Treasury rates fell 80 to 120 basis points from these actions, in total; that the stock market was boosted; and that 2 million jobs were created via these actions since 2008.
(2) He added later, though, that the “Magnitude and Persistence” of these types of effects are less certain.
(3) He also went through the use of communication by the Fed since the crisis. Again, he affirmed that telling public markets the Fed short-rate was going to held down, in a pre-commitment statement, was effective on the markets and the U.S. economy too.
(4) He stated that monetary policy can’t fine tune outcomes, which struck me that the FOMC debates take seasonal and other volatility in economic data with a grain of salt.
(5) He let us know that the 8.3% U.S. unemployment rate is around 2% above what members of the FOMC consider a natural, or frictional rate of unemployment. That means to me that the FOMC manages for unemployment rates and not inflation until the U.S. economy gets near a 6% unemployment rate.
(5) A statement about the need for “Broader and More Balanced Policies” was a clear nudge to the fiscal authorities and the fiscal debate taking place in Washington this fall.
(6) He did not rule out further use of non-traditional policies.
In sum, Chairman Bernanke believes the Fed’s non-traditional monetary policy actions since the crisis appear to be working on the U.S. economy, and the laundry list of possible negative effects are not meaningful.
The only concern I read in the transcipt was about “Persistence and Magnitude” of the previously taken non-traditional decisions.
I took that to mean that the FOMC will keep further non-traditional actions in the toolkit, but not necessarily use them anytime soon. The fine-tuning statement was a push-back on QE happening at the next meeting.
Now to open the debate, what did all of you think about this announcement?
More QE in September? Are more unorthodox decisions to come from the Fed, but later?
Let us know what you think.
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