By David Berman
Investors were a touch disappointed by Ben Bernanke’s remarks on the economy on Thursday afternoon, after the Federal Reserve chairman failed to reassure anyone that the central bank was working on new ways to stimulate the economy with monetary policy.
While acknowledging that the economic recovery has been far less robust that earlier thought and noting that inflation should moderate over time, dipping below 2 per cent, he offered up little in the way of assistance – other than reiterating that the Fed will keep its key rate essentially unchanged for another two years.
“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” he said in prepared remarks. “My FOMC colleagues and I will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September and are prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability.”
In other words, no Operation Twist (buying longer-term bonds in favour of shorter-term bonds), QE3 (or a third round of quantitative easing) or any other dazzling policies just yet.
This wasn’t too surprising, given that the Fed chairman has suggested in recent comments that there is only so much that a central bank can do to stimulate job creation. Still, the Dow Jones industrial average, which had been relatively flat before the chairman spoke in the early afternoon, reflected some disappointment on the part of investors. At a point in the afternoon the Dow was down 72 points or 0.6 per cent, to 11,343.
Still, there’s always hope that President Barack Obama will take up the stimulus baton. He is addressing Congress at 7 p.m. (ET) on Thursday and is expected to announce an economic stimulus package that could include tax cuts and spending on infrastructure projects.