Ben Bernanke ‘out of touch’
Bay State economists say more action by the Fed is needed
By Jessica Van Sack | The Boston Herald | September 1, 2012
Investors reacted well to Federal Reserve Chairman Ben Bernanke’s highly anticipated address yesterday, in which he reiterated the central bank was ready to act “as needed” — but economists had a different view.
At the Fed’s annual symposium in Jackson Hole, Wyo., Bernanke stopped short of calling for a controversial “quantitative easing” program, but acknowledged the economy is on the wrong track.
“Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time,” he said.
The Fed has two mandates — to control inflation and to keep unemployment low. And while inflation remains below its 2 percent target, unemployment continues to hover above 8 percent.
“It really is odd because if things were reversed and we had a little too much inflation with acceptable unemployment, they’d be doing everything they can to bring that inflation down,” said Victor Matheson, economist at the College of the Holy Cross. “There’s also a sense that if you’re on the Federal Reserve board you’re a very privileged individual. You’re not likely to know the 8 percent of the population that’s unemployed now. You’re more likely to know those who will suffer if there was a little bit of inflation.”
“I think there’s some sense they’re out of touch,” Matheson said.
Matheson supports the third round of quantitative easing that Boston Fed President Eric Rosengren called for last month. Rosengren declined to comment yesterday.
The markets may believe QE3 is on the way. The Dow Jones Industrial Average rose .69 percent to close above 13,090, the Nasdaq gained .60 percent to close above 3,066 and the S&P 500 Index climbed .51 percent to top 1,406 yesterday.
Beacon Hill Institute Executive Director David Tuerck said Bernanke’s speech suggests “he quite literally doesn’t know what he’s doing.”
“What he’s effectively admitting here is nothing else is working,” Tuerck said. “He’s frustrated the economy isn’t expanding. So he’s musing on the possibility he might undertake further easing.”
Northeastern University economist Alan Clayton Matthews said the power to improve the economy now lies with Congress and its ability to stave off the so-called fiscal cliff of financial deadlines in early 2013. “It’s not a good Labor Day for the Federal Reserve Bank,” he said.