Ben Bernanke, chairman of the US Federal Reserve, is likely to keep the stimulus it has in place and possibly extend it early next year.
With the exception of Mitt Romney, those Republicans vying to take on President Barack Obama next year have made clear they're no friend of this Fed. It's too interventionist, is debasing the dollar, punishing the country's savers and institutionally secretive.
Newt Gingrich would like to see Ben Bernanke turfed out, while Ron Paul, the Texan Congressman who has been a consistent critic of the central bank for decades, would like to see its mandate changed to one that focuses only on controlling inflation. But there's one area most of them and Bernanke would agree on: the string of better economic data over the last month is nothing to get euphoric about.
For the Republican nominees, an improving economy risks cementing Obama in the Oval Office for another four years. Bernanke and Fed officials, on the other hand, have been beguiled by false dawns for this recovery before. The central bank cut its forecast for US growth three times this year.
Bernanke's also had to admit that the Fed doesn't fully understand why the recovery has struggled to put down roots. At a press conference in the spring, he pointed to the disruption from Japan's earthquake and higher oil prices, before telling his audience that the bank hadn't got a complete handle on why growth was disappointing.
It would therefore be a surprise if Tuesday's statement from the Fed lends too positive a gloss to November's drop in the unemployment rate or evidence - today's retail sales figures aside - that growth in consumer spending has picked up in the third and fourth quarters after grinding to a half in the second quarter. The economy has delivered better showing in the second half of the year than the 0.8pc expansion it mustered in the first six months.
None of which will be enough for Bernanke and his policy allies on the Fed's Open Market Committee - vice-chairman Janet Yellen, NY Fed chief Bill Dudley and Charles Evans at the Chicago Fed - to call time on the stimulus the central bank has provided since the autumn of 2008. To its critics, the Fed, like the Bank of England, has looked like an institution playing a desperate game of catch up since failing to anticipate the credit crunch and, initially at least, underestimating its scale.
It's why the majority of banks expect the Fed to embark on another round of quantitative easing sometime in the first quarter of next year. That's despite warnings - including one this week from the Bank for International Settlements - that more QE will have a limited effect. Bernanke & Co. are unlikely to be deterred by either internal dissent on the FOMC or greater political opposition, which will surely come if more QE does.
Bernanke can, rightly, point to a fiscal policy that's both so far failed to provide much in the way of short-term stimulus for the economy and a plan to reverse the long-term trajectory for America's national debt. Above all else, though, Bernanke can point to the risks to the US that are still bubbling away in Europe. Senior Fed officials have said nothing publicly since Friday's summit in Brussels and we're unlikely to get much illumination from their statement later today.
But the crisis of the euro is the latest - and by far the most dangerous - shock to hit the US economy this year. With the US recovery far from secure, the Fed will keep the stimulus it has in place and possibly extend it. Unlike some of those competing to be the Republican nominee, 2011 will have taught Bernanke that a still fragile economy is not insulated as the effects of the financial crisis play elsewhere in the world.
No comments:
Post a Comment