Friday, August 26, 2011

Ben Bernanke's Jackson Hole Speech

The much awaited Jackson Hole speech has been posted to the US Federal Reserve website; below are some highlights.  The first quote is the one most people will be interested in, and refers to the fact that the Fed is optimistic on the long term prospects for the US economy, but that short term weakness should potentially be addressed; there is no obvious tip for a "QE3", instead the line is that the FOMC has options and will consider the issues and act accordingly.  In other words Bernanke has not ruled out further stimulus, but hasn't strongly signaled an impending move either.  Bernanke also stresses the role of fiscal policy and the need to address the long term sustainability of the US, but in the context of short term weakness.  Read the quotes below or see the whole speech and post your thoughts in the comments section below.

"In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability."

"To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. As I have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.1 The increasing fiscal burden that will be associated with the aging of the population and the ongoing rise in the costs of health care make prompt and decisive action in this area all the more critical."

"Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery. Fortunately, the two goals of achieving fiscal sustainability--which is the result of responsible policies set in place for the longer term--and avoiding the creation of fiscal headwinds for the current recovery are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives."


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