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Bernanke Shrugged: Short Term Pain for Long Term Gain

April 27, 2011

I was overall impressed with Bernanke’s deft handling of questions at today’s press conference. The take aways are simple: Short term pain for long term gain. That is a singular interpretation, but one founded on actually listening directly to the Fed Chairman explain what measures have been taken to stabilize the economy, what measures have been successful in turning the economy right side up and headed in the right direction of sustained growth (versus a full on deflationary depression), and his ever vigilance on inflation. His focus is both long and short term.

He acknowledged his concern for the rise in oil prices, but there is little the Federal Reserve can do on that front. He even said, his stance was it is a supply and demand problem. Emerging markets are accounting for the greater demand as U.S. demand has actually fallen somewhat over the past 10 years. And he acknowledged higher unemployment was higher than he would like to see. He suggested in a very round about way that job growth will come from jobs programs and business investment — a public and private sector solution.

The United States is damn lucky to have Bernanke at the helm. This man is well informed on Depression era economics. He and the Fed made a decision to avoid the mistakes made that exasperated the Great Depression, namely contracting capital and allowing 2300 banks to fail. We have had under 200 fail. What I was missing — and this is not Bernanke’s fault — were questions about the financial health of our banks and of the too-big-to-fail banks. Not one question was asked by reporters. In fact, the questioning was weak with little about Europe’s austerity plan although Bernanke took the opportunity to say he was watching Europe closely.

What I heard was this: steady as she goes. The Fed will be carefully eyeing inflation and he said will take appropriate measures to head off any inflation in the broader economy should it arise. QE2 did its job and ironically Bernanke was not asked about a possible QE3. Solutions will come through a confluence of events and the Fed will be monitoring them as things unfold.

Related New York Times Live Blog Commentary, click here


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