The good news about this Ben Bernanke speech to the Economic Club of New York is that he shows no sign of wanting to join David Ignatius in tightening monetary policy. The bad news is that he sounds awfully blasé about the prospect of a prolonged period of double digit unemployment:
Jobs are likely to remain scarce for some time, keeping households cautious about spending. As the recovery becomes established, however, payrolls should begin to grow again, at a pace that increases over time. Nevertheless, as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect.
The outlook for inflation is also subject to a number of crosscurrents. Many factors affect inflation, including slack in resource utilization, inflation expectations, exchange rates, and the prices of oil and other commodities. Although resource slack cannot be measured precisely, it certainly is high, and it is showing through to underlying wage and price trends. Longer-run inflation expectations are stable, having responded relatively little either to downward or upward pressures on inflation; expectations can be early warnings of actual inflation, however, and must be monitored carefully. Commodities prices have risen lately, likely reflecting the pickup in global economic activity, especially in resource-intensive emerging market economies, and the recent depreciation of the dollar. On net, notwithstanding significant crosscurrents, inflation seems likely to remain subdued for some time.
Now if you were just asking my opinion, I’d say something very similar to what Bernanke is saying here. But Bernanke isn’t just offering an opinion, he’s the country’s top monetary policymaker. And he’s telling us that his vision of recovery involves a long period of labor market weakness and low inflation. He says that this situation is “likely to warrant exceptionally low levels of the federal funds rate for an extended period” but the very high level of unemployment seems to clearly militate in favor of further easing. Bernanke acknowledges that he has a “dual mandate to foster both maximum employment and price stability” but he’s also acknowledging in this piece that he hasn’t fostered anything close to full employment, and doesn’t think his policies are likely to achieve anything close to full employment any time soon.
But then why isn’t he doing more?