Wall Street wanted to hear Ben Bernanke talk about cheap money today. Instead, the Fed chair offered no hint of any more easing of monetary policy, causing a slight decline in the stock market after his speech in Jackson Hole, Wyoming. Bernanke told the audience that Washington needs to start finding ways to create jobs fast in order to repair the economy:
Bernanke’s speech at a central banking conference appeared to disappoint some market participants who had hoped the Fed chairman would make a clear case for a further easing of monetary policy. The U.S. dollar strengthened and stocks added to losses on his comments.
“The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “The economic healing will take a while, and there may be setbacks along the way,” he added. “However … the healing process should not leave major scars.”
While expressing long-term optimism, Bernanke made plain the central bank found recent developments troubling, and he said the Fed would expand its September policy meeting to two days from one to discuss its options.
However, Bernanke also stressed that most of the burden for ensuring a solid foundation for long-term growth lay at the feet of the White House and U.S. Congress.
“Financial stress has been and continues to be a significant drag on the recovery, both here and abroad,” he said. “It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth.”
Bernanke didn’t exactly shut the door on future easing, either. Adding an extra day to the September deliberations signals a willingness to look at the issue. But with the core PCE price index going up 2.2% (annualized) and overall PCE price index increasing over 3% in the last quarter, deflation isn’t a risk in the short run. Inflation might be if Bernanke sets sail on a QE3.
Besides, Bernanke tried easing with QE2 and it had no effect on growth. It didn’t force capital off the sidelines, as some had suggested, by attacking its value through inflation. The risks for investment have not been made any clearer, and indeed look even more muddled as Obama and Democrats threaten to renege on the tax-rate deal they struck in December through the so-called “super committee” deliberations. Bernanke is absolutely correct that the problem with the economy lies with Washington’s handling of it.
We need to create jobs — lots of jobs, and fast. That would mean reducing regulatory expansion in a meaningful way, especially on energy production. The Obama administration insists that it will reduce needless and costly regulation, but Speaker John Boehner wrote an open letter to the White House today insisting that their own public data shows regulatory burdens will increase, not decrease:
House Speaker John Boehner (R-OH) today sent a letter to President Obama noting the scheduled increase in regulatory action by the Administration and asking that the White House provide Congress with a list of all of the regulatory actions it plans that would have an economic impact of $1 billion or more. The Speaker formally requested that the White House provide this information before Congress returns this fall, when the House is scheduled to resume work on legislation promised in the Pledge to America that would require congressional approval for any new regulatory action that is projected to have a significant impact on job creation.
Boehner sent a similar request for information to the president last August, when he was serving as House Republican leader. The requested information was never provided. …
The Obama Administration’s newly-updated regulatory agenda is posted online at http://www.reginfo.gov/public/do/eAgendaMain. Right on the front page is a graph showing that 4,257 new regulatory actions are in the works. To dig a bit deeper on that number, one must go to the “Advanced Search” feature on the site, located at http://www.reginfo.gov/public/do/eAgendaAdvancedSearch#. To reach that search page, go to the “search” box in the upper right corner of the main page, check the “agenda” box, and hit the search button, then click on the “Advanced Search” link that appears on the page that subsequently comes up. From there, check the option marked “Search most current publication only” and hit “continue.” On the next page that comes up, select the option “All,” and hit “continue” again. On the page that comes up, visitors are given the ability to break down the data based on a variety of different criteria. To obtain a list of the regulatory actions currently planned by the Administration that will have an economic impact of $100 million or more, go to the “Priority” options about halfway down the page on the left, and check the box marked “Economically Significant.” Hit the search button at the bottom of the page.
Bernanke is wrong about one point: Washington isn’t the solution — it’s the problem. When the Obama administration and its reckless expansion of the regulatory regimes it uses to impose its agenda finally retreats, investors will fill the vacuum, and we will create the jobs Bernanke rightly says will boost the economy. Until that happens, we will continue with the stagnation, staggering costs, and lost opportunities that have been the hallmark of Obamanomics since Porkulus.
Update: King Banaian has further analysis of the speech, calling it an “ominous” precursor to more stimulus.