All talk and no walk Bernanke style
Posted by Jason Apollo Voss on Oct 15, 2010 in Blog | 2 commentsThis morning saw the Chairman of the Federal Reserve provide the most obvious commentary one can imagine. In a series of prepared remarks made at the Federal Reserve Bank of Boston the Chairman emphasized that:
- That the economy was growing too slowly.
- That the slow growth was preventing businesses from hiring new employees.
- That there was too little in the way of inflation in the economy and that there is a risk of deflation.
All of this means that the Federal Reserve needs to “take action” to boost the economy. Duh! On all points of the speech: duh! The question is why would the Federal Reserve Chairman make such obvious comments and right now?
It is my feeling that these comments are part of a series of comments by various members of the Federal Reserve Board to “talk up” the economy. The goal is to provide reassurance to investors and the business community that the Fed will “do what it takes” to support the economy. Unfortunately, the policy measures that the Fed can take to improve the economy are all fairly impotent at this point. Interest rates hover near zero, that is, money is very, very cheap. Despite that, there is not exactly a long line of businesses trying to borrow money to finance new, exciting, sexy growth projects.
Sans new, exciting, sexy monetary policy investors should not be fooled by empty rhetoric. All talk, no walk.
Jason
No estб seguro de que esto es verdad:), pero gracias a un cargo.
Dolly
Essentially the above comment says, “Not sure that this is true, but thanks.”
Thank you for the comment – all of them are appreciated. It’s not that the Federal Reserve has no power – it is the most powerful financial institution on the planet. But the Federal Reserve has been its most activist the last two years since its creation back in 1913. Yet, despite that activism and the utilization of many new and powerful tools, they still have not been able to change the mood of the people.
Policies work on people emotionally. When the Fed says that it is lowering interest rates in the face of a decline in economic activity, that lowering is actually irrelevant if businesses don’t feel willing to risk borrowing money. That’s an emotional choice. In regular economic times, the Fed announcing a lowering of interest rates has the effect of making a business decision maker just so slightly more comfortable with an investment in a project. Right now, despite record low interest rates, that just isn’t happening.
Until the mood of the business and consumer worlds is better – and I feel that will take many years to fully recover – then the Fed will remain largely impotent.
Jason