To the disappointment of many on Wall Street, and to the relief of many in the real world, the Federal Reserve Board did not announce a third quantitative easing program (QE3) today.
But Fed Chairman Ben Bernanke did not rule out a QE3 in the future.
Op-ed writers and politicians are often criticized for taking an “on the other hand” approach, in which they combine criticism and praise in the same commentary or speech. Of course, Mr. Bernanke is not an op-ed writer, but his highly anticipated Jackson Hole speech today would certainly qualify as an “on the other hand” speech. Both supporters and opponents of ongoing monetary easing could find plenty to like – and plenty to dislike – in what he had to say.
Consider a few excerpts from Reuters:
“Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Sounds like QE3 is coming!
“Key sectors such as manufacturing, housing, and international trade have strengthened, firms’ investment in equipment and software has rebounded, and conditions in financial and credit markets have improved.”
Oh, wait … I guess we don’t need it.
“ … the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.”
Yes, there will be a QE3!
” … the bar for the use of nontraditional policies is higher than for traditional policies. In addition, in the present context, nontraditional policies share the limitations of monetary policy more generally.”
Well, no … I guess not.
Also of interest, he says that, “It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs.”
Keep in mind that Congress has not passed a budget in three years. On the other hand:
“However, policymakers should take care to avoid a sharp near-term fiscal contraction that could endanger the recovery.”
So there will be no QE3 now. On the other hand …