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Bernanke’s Plan: Sit, Wait and Then Do Something
Reporters whose job it is to tell us what the Federal Reserve tells them didn't have much to go on last week. So they told us what we already knew.
The Wall Street Journal's Jon Hilsenrath, the current "go-to" person on the Fed, reported on July 25 that policy makers are "moving closer to taking new steps to spur activity and hiring." They could take action this week, he said, or they could wait until the September meeting to "accumulate more information on the pace of growth and job gains." (That's the thing about information: You always accumulate more if you wait.)
Both reports pretty much reiterated what Chairman Ben Bernanke said a week earlier when he delivered the Fed's semiannual monetary policy report to Congress. The Fed "is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability," Bernanke said.
Let's do a data check. Stronger economic recovery? The U.S. economy grew at a real 1.5 percent annualized rate in the second quarter, down from the first quarter's 2 percent and the fourth quarter's 4.1 percent. Check.
Improvement in labor conditions? The unemployment rate, currently at 8.2 percent, has barely budged since the start of the year as employment growth decelerated to an average of 75,000 a month in the second quarter from 226,000 in the first. Check.
Price stability, for which the Fed considers its 2 percent target close enough to zero for government work? The Fed's preferred price measure, the personal consumption expenditures price index, rose 0.7 percent in the second quarter compared with 2.5 percent in the first. Excluding food and energy, which the Fed likes even better when food and energy prices are acting up, the respective increases in the core PCE price index were 1.8 percent and 2.2 percent. Check.
Bernanke's not-enough-progress on growth and employment appear to have been met, all in the context of price stability. Therefore, one can conclude that the Fed probably will do something because even if the forces restraining the economy aren't monetary in nature, doing something looks better than doing nothing. Yet with questions about how unseasonal weather patterns this year may have boosted the first quarter at the expense of the second, my guess is that the Fed waits until the Sept. 12-13 meeting -- if for no other reason than to accumulate more information.
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