Federal Reserve Chairman Ben Bernanke is unlikely to disclose his strategy going forward when he attends the annual economic policy symposium in Jackson Hole in September, says Randall Kroszner, former Federal Reserve governor and a professor of economics at the Booth School of Business at the University of Chicago.
Back in 2010, Bernanke had disclosed his strategy, because he was sure where the FOMC was heading. This time around, however, we have a little stronger data, but not so strong not to make a case for further monetary stimulus, thus complicating the situation.
However, it may be too early for the QE addicted to pop the champagne cork despite improved housing and retail sales data, since we had had false starts earlier. Randy says even he’s curious to see September employment data and would rather wait and watch before making a call.
The economy has been in a sideways slide for a long time; whether it’s the unemployment rate that ranged between 8.2-8.3 percent for the last five/six months, or the economic growth that varied between 1.5 and 2 percent, we have seen the economy improving and then sliding back without any true change in the trend. It’ll be interesting to see if we are witnessing the beginning of an upward trend now, he noted.
Asked to comment on further action by the central bank, Randy said one of the main worries for the Fed is inflation and fortunately the Consumer Price Index data for July has been flat.
In fact inflation numbers have been quite benign over the last two quarters. Also, fortunately, there’s not much expectation for further inflation going forward, which gives the Fed a lot of flexibility for action if it thinks further stimulus is going to help.
However, the real debate is whether further balance-sheet expansion is going to help as many believe (that includes me) we have fired all the effective shots while others argue there’s still room for more, he added.
The developments in Europe, however, remain one of the main factors and have been mentioned by Bernanke in earlier FOMC meetings, he said. If Europe is taken out of the picture, then the argument for further stimulus becomes a little weak in the US.
The Jury’s still out on Europe though, as significant implementation risks remain since we have seen a lot of debate, but little action on the ground. The single-currency’s strength is not of much an importance vis-à-vis the dollar even though no body wants to see higher currency volatility. The main focus still remains on the crisis and possible contagion, he concluded. You can watch the video here.Contact Ulli