Business, Economics and Jobs

US economy: Decoding Bernanke


Federal Reserve Bank Chairman Ben Bernanke testifies before the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill July 22, 2009 in Washington, DC


Chip Somodevilla

With the U.S. unemployment rate up to 9.1 percent, the dollar falling, oil prices rising, and consumer confidence in the world's largest economy waning, it's a good time for America's top banker to give a pep talk.

The problem: almost no one can understand what Federal Reserve Chairman Ben Bernanke is saying.

So to help you comprehend Bernanke's Fedspeak-infused speech today to an American Bankers Association conference in Atlanta, here's a quick translation.

Bernanke on U.S. fiscal policy:

The prospect of increasing fiscal drag on the recovery highlights one of the many difficult tradeoffs faced by fiscal policymakers: If the nation is to have a healthy economic future, policymakers urgently need to put the federal government's finances on a sustainable trajectory. But, on the other hand, a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery. The solution to this dilemma, I believe, lies in recognizing that our nation's fiscal problems are inherently long-term in nature. Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation. By taking decisions today that lead to fiscal consolidation over a longer horizon, policymakers can avoid a sudden fiscal contraction that could put the recovery at risk. At the same time, establishing a credible plan for reducing future deficits now would not only enhance economic performance in the long run, but could also yield near-term benefits by leading to lower long-term interest rates and increased consumer and business confidence.

Translation: Well this sucks. America's colossal deficit is going to turn us into Argentina. But if we spend more to fix that right now, the economy could collapse and nobody would ever find a job. So let's put together a plan that reduces the deficit down the road and hope for the best.

Bernanke on the falling dollar:

Slow growth in the United States and a persistent trade deficit are additional, more fundamental sources of recent declines in the dollar's value; in particular, as the United States is a major oil importer, any geopolitical or other shock that increases the global price of oil will worsen our trade balance and economic outlook, which tends to depress the dollar. In this case, the direction of causality runs from commodity prices to the dollar rather than the other way around. The best way for the Federal Reserve to support the fundamental value of the dollar in the medium term is to pursue our dual mandate of maximum employment and price stability, and we will certainly do that.

Translation: The dollar isn't weak because of my QE2 plan. It's weak because oil is high. Thank you, angry Arabs. Since we buy a crapload of oil, the best thing for us to do is worry about creating jobs while keeping inflation low. Somehow.

Bernanke on the weak U.S. economy:

Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established. At the same time, the longer-run health of the economy requires that the Federal Reserve be vigilant in preserving its hard-won credibility for maintaining price stability. As I have explained, most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term. Should that forecast prove wrong, however, and particularly if signs were to emerge that inflation was becoming more broadly based or that longer-term inflation expectations were becoming less well anchored, the Committee would respond as necessary. Under all circumstances, our policy actions will be guided by the objectives of supporting the recovery in output and employment while helping ensure that inflation, over time, is at levels consistent with the Federal Reserve's mandate.

Translation: The economy stinks. But we're going to hope that inflation is a short-term problem and try to get the economy growing again to create more jobs. That's what I'm paid to do, people. 

Bernanke on the economy's outlook:

U.S. economic growth so far this year looks to have been somewhat slower than expected. Aggregate output increased at only 1.8 percent at an annual rate in the first quarter, and supply chain disruptions associated with the earthquake and tsunami in Japan are hampering economic activity this quarter. A number of indicators also suggest some loss of momentum in the labor market in recent weeks. We are, of course, monitoring these developments. That said, with the effects of the Japanese disaster on manufacturing output likely to dissipate in coming months, and with some moderation in gasoline prices in prospect, growth seems likely to pick up somewhat in the second half of the year. Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers.

Translation: The economy is worse than I said it was going to be but Japan's disaster hurt us, too. And can you believe those gas prices? Both of those things are getting better, I promise. But not fast enough if you're one of the 14 million people in this country without a job. Sorry about that.