Bernanke Promises Nothing

The biggest economy in the world, bogged down and on the edge of a new recession, urgently needs new fiscal stimulus to rekindle dynamism and return to the path of growth. Though not in so many words, this was the message from the chairman of the Federal Reserve, Ben Bernanke, in his much-anticipated speech on Friday at the annual meeting of monetary authorities in Jackson Hole, Wyoming. Promoting strong and lasting growth is beyond the reach of monetary policy, according to Bernanke. Without discarding the possibility of some new measure in the area of money and credit, he made very clear, nevertheless, the fundamental importance of another type of action — a probable combination of public spending and tax incentives, all coupled with a plan for long-term reform.

Without mentioning the the name of President Barack Obama, he supported the same type of policy as that defended by the White House in the recent bargaining over the public debt and rejected by the opposition. The solution depends, however, on an agreement between the Executive and Congress, and not the Federal Reserve.

The speech was given at an especially dramatic moment. Hours before, the government had revised the economic data from the second trimester. By the new calculations, the economy grew at a rate of 1 percent per annum. The previous estimate, already worrying, had indicated an expansion of 1.3 percent.

Unemployment, as we were reminded in the speech, had remained a little above 9 percent, without the prospect of reduction in the coming months.

Bernanke mentioned some improvements from the last two years, since the low point of the recession, but described the current crisis as more entrenched than those before. American manufacturing is still lower than before the crisis. Construction, an important factor of the recovery in other difficult times, is still stagnant. Separately, small businesses are having difficulties in obtaining credit, and families, which had their finances shaken in recent years, are not seeking new loans.

All week, there was enormous anticipation regarding Bernanke’s statement. He could announce — went one theory — a new phase of monetary easing, with the release of another torrent of dollars to the market. Anyone expecting a commitment of this type was disappointed. Any decision about new measures will only be taken, according to him, based on new information. The analysis of the new data, continued Bernanke, will be especially cautious: The next meeting of the Fed’s monetary policy committee, in September, will take two days instead of one.

It is difficult to imagine, at this point, why the directors of the Fed would announce a new phase of monetary easing, with a new injection of dollars. Right now, American banks are keeping reserves of more than $1.6 trillion in the Fed — more than is obligatory. If they have no use for that money, what do they need more dollars for? More dollars on the market would probably be directed to the speculation in commodities and emerging markets, augmenting the overvaluation of the currency against the Brazilian real and aggravating the commercial problems with Brazil and other countries.

Bernanke limited himself to reaffirming the probable continuation of very low interest rates — between zero and 0.25 percent — for a long time, perhaps until around 2013. At the same time, he reiterated the expectation of higher performance of the American economy from this half-year, but not of a sufficient recovery to create many jobs.

Meanwhile, the crisis pursues the rest of the developed world. In Europe, the big news this week was the announcement by the French government of a plan for reform, with tax increases and spending cuts. The Italian government has already launched an even more severe austerity plan.

If these initiatives serve to calm the markets, they may yet produce a good result. But not even this is certain, and the prospects of growth, in Europe and also in Japan, remain discouraging.