While I was away, Mr. 37 revealed that he is a 37er so the markets OUGHT to take very seriously Ben Bernanke’s PROMISE to Milton Friedman that the FED will not make the mistakes of 1937 again. In the interview with Diane Sawyer and the speech delivered at The National Association For Business Economics on Monday, the Fed chairman displayed his 37er credentials in full force.
The FED is concerned about the slow improvement in the overall jobs situation and will maintain its “EXTENDED PERIOD” monetary policy until the present jobs uncertainty has begun to clear. In the speech, Chairman Bernanke spent considerable time defining the difference between STRUCTURAL AND CYCLICAL unemployment. The FED chairman said he believed the primary reason for the slow return to improved jobs opportunities was more cyclical ”… the continued weakness in aggregate demand is likely the predominant factor.” This was a comment of heads, the FED STAYS THE COURSE, or tails, it’s STRUCTURAL and the FED WILL MAINTAIN THE NEEDED COUNTERCYCLICAL MONETARY POLICY AND WOULD EVEN NEED MORE HELP FROM OTHER AREAS: FISCAL POLICY AND A MASSIVE RE-EDUCATION PLAN.
Either outcome, CYCLICAL OR STRUCTURAL, means the FED will err on the side of aggressive easing and any attempt by the market to push rates higher will be met by FED RESISTANCE. This speech was important because it shows that Bernanke is much more concerned with UNEMPLOYMENT and believes that INFLATION in a period of BALANCE SHEET RECESSION is a non-event. As consumers and corporations repair their credit situations through savings and paying down debt, inflation is just not a paramount threat. As I have discussed many times before, in an era of VERY WEAK PRIVATE SECTOR UNIONS WITH LITTLE POWER TO RAISE WAGES, THE FED HAS TAKEN ON THE ROLE OF FIGHTING FOR THE WAGE EARNER.
Read the speech carefully to understand the course that Ben Bernanke is steering. As for Minneapolis Fed President KOCHERLAKOTA, you might want to bone up on BEVERIDGE CURVES for your next speech on unemployment. Bernanke seems to have thrown down the gauntlet to the structural unemployment argument. Bottom line: The FED is serious about the GDP/JOBS GROWTH RELATIONSHIP.