Fed Chairman Ben Bernanke's speech at the central banking retreat in Jackson Hole, Wyo., is primarily devoted to defending the Fed's past quantitative-easing measures, but my colleague Zach Goldfarb reports that it's being taken as a sign that more easing is on the way. Bernanke is clear that he finds current employment unsatisfactory:
The economic situation is obviously far from satisfactory. The unemployment rate remains more than 2 percentage points above what most FOMC participants see as its longer-run normal value. … Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.
And he rejects the views of those, like Michael Spence and Jeffrey Sachs, who argue that unemployment is largely structural, rather than due to low demand:
Some have taken the lack of progress as evidence that the financial crisis caused structural damage to the economy, rendering the current levels of unemployment impervious to additional monetary accommodation. … However, following every previous U.S. recession since World War II, the unemployment rate has returned close to its pre-recession level, and although the recent recession was unusually deep, I see little evidence of substantial structural change in recent years.
So what does Bernanke see as the big problems? In short, a housing market that hasn't fully recovered, austerity at both the federal and state levels, and the looming crisis in Europe. All three are holding back recovery, the first by hurting a key area of consumer spending, the second by hurting employment in both the government sector and those private businesses that rely on government spending, and the last by reducing confidence in credit markets, making it harder for businesses to get capital. So what's he going to do?
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.
That's vague, and probably purposefully so. But coming after a long argument that quantitative easing has worked in recent years, and a rejection of structural arguments that, if correct, mean that more easing will be ineffective, it's hard not to see it as an indication that more aggressive Fed action is on the way.