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The marketplace was zeroed in on Ben Bernanke and Jackson Hole, Wyoming, Friday awaiting a signal from the Federal Reserve's chief on the central bank's game plan for rekindling the stalled economy.
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But with no mention of new action, as economists Patrick Newport and Nigel Gault from ""IHS Global Insight"":http://www.ihsglobalinsight.com put it, Bernanke's speech ""wasn't the blockbuster event that markets had been looking for.""
In a research note following the highly anticipated speech, the IHS analysts said, ""Unfortunately, the Fed doesn't have any rabbits to pull out of the hat to magically re-ignite economic growth. It is doing what it can (and that will probably mean more quantitative easing at some point), but its prime ammunition has already been used.""
At last year's Jackson Hole meeting, Bernanke energized the markets with hints of QE2, a second round of ‘quantitative easing' that involved buying up $600 billion more in Treasury bonds to keep interest rates low and money flowing. No such spark this year.
Instead, Bernanke criticized policymakers for their handling of the U.S. fiscal situation and the raising of the debt ceiling, and warned of the continuing volatility stemming from reactions to Europe's financial troubles.
""It is difficult to judge by how much these developments have affected economic activity thus far, but there seems
[COLUMN_BREAK]little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth,"" the Fed chief said.
Bernanke said he believes the nation can avoid a second recession but stressed that it will take more than the central bank's monetary policy incentives to get the economy moving again.
""[M]ost of the economic policies that support robust economic growth in the long run are outside the province of the central bank,"" he said.
Housing was the black eye of the Fed chairman's address. Bernanke said this ""recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis.""
He said these two features of the downturn have acted to slow the natural recovery process.
Bernanke pointed out that the housing sector was a significant driver for recovery from recessions in the U.S., going back to World War II.
But this time, he says, ""with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines,"" the housing sector has proved to be one of the biggest hindrances for growth.
Bernanke says it's been a double-edged sword â€" while tight credit has been one of the restraints on the housing recovery, the weakness in the housing sector has had adverse effects on financial markets and the flow of credit.
Nevertheless, Bernanke said, ""Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it.""
He added, ""Good, proactive housing policies could help speed that process.""
