Staying with the belief that the Fed can still do more, Bernanke said they are prepared for more accommodation if needed but he finally publicly acknowledges that “central bankers alone cannot solve the world’s economic problems.” He gives color on what left the Fed can do if circumstances warrant but acknowledges drawbacks to each perceived benefit. On the economy, “although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected…Much of the unexpected slowing is attributable to the household sector, where consumer spending and the demand for housing have both grown less quickly than was anticipated.” He still expects a modest recovery. On inflation he says, “the risk of either an undesirable rise in inflation or of significant further disinflation seems low.”
Bottom line, the speech is as one should have expected it to be, an elaboration of the Aug 10th FOMC meeting but with an uncertain game plan going forward, but game plan on their part nonetheless, if the economy turns down again. Yes the Fed has bullets left as long as they have the printing press but we can only hope that they carefully analyze whether the law of diminishing returns is here with monetary policy and thus the costs of further moves outweigh the hoped for benefits. Turn the screens off now, enjoy the weekend and join the rest of the country that wasn’t paying attention to what Bernanke thinks they can and may do next.