Econintersect: Since 1978 the Federal Reserve Bank of Kansas City has been sponsoring what is now becoming one of the most important monetary policy conferences in the world. Here is a little background using the journalistic 5 w‘s and the h:
Who is invited: Central bank officials from more than 35 countries, global academics, and “experts”
What: 2011 Federal Reserve Bank of Kansas City’s Annual Economic Symposium
When: Starts 26 August 2011
Where: Jackson Lake Lodge, Grand Teton National Park, Jackson Hole, Wyoming
Why: The stated purpose of focusing on a topic that is not necessarily of immediate concern, but instead looks into the future at emerging issues and trends. Of course this is not true in 2011. There may be other speakers, but the world waits for the words of only Federal Reserve Chairman Ben Bernanke. The economy is again stalling out, and last year Chairman Bernanke suggested his controversial QE2 policies. The markets are waiting to see what rabbit is pulled out of his hat this year.
How: How in journalism is used to describe what happened. As this is a future event, there is no how – only speculation and guesses. Opinions vary from another round of quantitative easing to no suggested actions. We know the Federal Reserve FOMC do not have a uniform vision of the next step (news here).
Over the past years, the statements of Chairman Bernanke have been important – and other times not. Here are the years and subjects of Chairman Bernanke Speeches:
It is not the responsibility of the Federal Reserve–nor would it be appropriate–to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy. In a statement issued simultaneously with the discount window announcement, the FOMC indicated that the deterioration in financial market conditions and the tightening of credit since its August 7 meeting had appreciably increased the downside risks to growth. In particular, the further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effects on consumer spending and the economy more generally.
Although we at the Federal Reserve remain focused on addressing the current risks to economic and financial stability, we have also begun thinking about the lessons for the future. I have discussed today two strategies for reducing systemic risk: strengthening the financial infrastructure, broadly construed, and increasing the systemwide focus of financial regulation and supervision. Work on the financial infrastructure is already well under way, and I expect further progress as the public and private sectors cooperate to address common concerns. The adoption of a regulatory and supervisory approach with a heavier macroprudential focus has a strong rationale, but we should be careful about over-promising, as we are still rather far from having the capacity to implement such an approach in a thoroughgoing way.
Since we last met here, the world has been through the most severe financial crisis since the Great Depression. The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge.
As severe as the economic impact has been, however, the outcome could have been decidedly worse. Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal, and financial policies around the world have been aggressive and complementary. Without these speedy and forceful actions, last October’s panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk. We cannot know for sure what the economic effects of these events would have been, but what we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted.
Notwithstanding the fact that the policy rate is near its zero lower bound, the Federal Reserve retains a number of tools and strategies for providing additional stimulus. I will focus here on three that have been part of recent staff analyses and discussion at FOMC meetings: (1) conducting additional purchases of longer-term securities, (2) modifying the Committee’s communication, and (3) reducing the interest paid on excess reserves. I will also comment on a fourth strategy, proposed by several economists–namely, that the FOMC increase its inflation goals.