The chairman of the Federal Reserve is held responsible for anything that happens in the financial arena; that’s in the job description, I believe. Still, to hear some observers describe Ben Bernanke’s speech yesterday, you would have thought that his pockets bulged with freshly printed C-notes while his winks covertly spelled out Morse code for QE, shorthand for quantitative easing and quick enrichment.
In fact, all the Fed chief did was address our now chronically high unemployment and the dangers it poses to the economy, which are much worse than the hazards of easy money we’ve heard so much about.
Preoccupied with survival, the unemployed have been a reticent lot when it comes to insisting that the Fed live up to the maximum employment half of its mandate, which is the half of the test that it’s flunking. Whereas you can hardly drop a penny from a penthouse without it hitting some disgruntled saver complaining about the low interest rates fostered by the Fed, as if the problem of being forced to venture into the stock market for returns was every bit as grave as losing the paycheck that used to feed one’s children.
So, yes, unemployment is bad and long-term unemployment’s worse, and not just for the people enduring it, Bernanke told a gathering of business economists. And there’s still too much of both around, he noted, while questioning whether the recent improvements in the job market can be sustained without an acceleration of growth. And if they aren’t, then the economy will continue to operate below its potential, which will itself gradually diminish as skills atrophy and capital depreciates.
That’s a sobering message, and one that doesn’t easily translate into a stock market rally to a new four-year high. So the glass-half-empty crowd was quick to suggest that the buyers were Pavlovian dogs salivating at the prospect of further monetary easing.
But maybe, just maybe, they were frustrated savers returning to stocks based on the economy’s improving fundamentals and reassurances from the Fed chief that he won’t repeat the Depression-era error, later made by Japan, of throttling recoveries prematurely.
There were no promises made by the Fed chief, explicit or implied, to bail out risk-takers. There was merely the reminder that the central bank’s keeping its eye on the ball, which is to say on the biggest danger still facing the economy.
And that’s the danger the demand remains subpar, draining the enthusiasm of recent months as the added jobs fail to translate into higher sales.
Knowing that, people still paid up for stocks. Part of that, to be sure, was the modest returns available elsewhere. But that’s how economic cycles work. Sometimes a reassurance that the people in charge won’t make things worse is all it takes.