Bernanke Forecast Implies Tough Policy Choices in 2010

Published on September 15, 2009

A very brief video clip of Federal Reserve Chairman Ben Bernanke announcing that the recession is over has been seen on nearly every nightly newscast this evening.  What is more relevant are the comments Mr. Bernanke made prior to stating that the recession is nearly over and the implication of his statements on Federal Reserve policy in 2010.

At a Brookings Institution conference today, Mr. Bernanke made it very clear that even if the recession technically ended in the third quarter, the recovery is likely to be very slow from the perspective of most Americans.  This is because unemployment is likely to remain at elevated levels for an extended period of time.  Here is a more extended video clip of Mr. Bernanke’s comments:

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2010 is an election year and there will be significant pressure on Mr. Bernanke to continue the unprecedented loose monetary policy that is currently in place until unemployment declines to more “acceptable” levels.  Obama Administration officials including Larry Summers are forecasting extended periods of unemployment.  The Administration is unlikely to welcome tighter monetary policy before GDP growth accelerates to the point where the economy is generating enough jobs to bring down the unemployment rate at least to the 7.6% level prevailing in January 2009 when President Obama took office.

No one is anticipating an employment recovery that will result in an unemployment rate anywhere near 7.6% in 2010.  Expect Senators to heavily press Mr. Bernanke on this point during his confirmation hearings for a second term.  There will be intense pressure to keep ultra-loose monetary policy in place through 2010, and the unfortunate consequence could very well be a resurgence of inflation in 2011 or 2012.

Bernanke Forecast Implies Tough Policy Choices in 2010
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