Federal Reserve Chair Ben Bernanke heads to Jackson Hole, Wyo., later this week where he will keynote the Kansas City Federal Reserve Bank’s annual symposium. His much anticipated appearance at the gathering of central bankers, policy experts and academics comes against the backdrop of a disquieting new survey in which more than three dozen leading economists say the U.S. economy will remain moribund for the next 12 months.
While the consensus of the 43 private, corporate and academic economists surveyed this month by The Associated Press is that the nation is unlikely to fall back into recession between now and next summer, they also do not foresee meaningful improvement in most of the leading economic indicators.
Among their downbeat conclusions, reported by AP, is that the nation’s gross domestic product will grow at 2 percent annual rate for the third quarter of this year, July to September, and 2.2 percent for the fourth quarter, October to December. While that represents an improvement upon the first two quarters of this year, it hardly is enough economic growth to lower the jobless rate.
The economists say that weakness in consumer spending – which fell in June for the first time in nearly two years – poses a “major” risk to the economy, inasmuch as consumer spending accounts for 70 percent of the nation’s economic activity.
They also expect the unemployment rate to finish the year at 9 percent before declining next year to 8.5 percent. Those figures are lower than the current 9.1 percent jobless rate but, as AP points out, they are more consistent with a recession than a recovery.
The economists surveyed are not especially hopeful that the Bernanke can reach into the central bank’s toolkit and turn around the nation’s barely growing economy. “The Fed can’t do anything at this stage that’s going to be meaningful,” Joshua Shapiro, chief U.S. economist at MFR. Inc., told AP.
That doesn’t mean that the Fed chair is not going to try. At last year’s mountainside conference in Jackson Hole, Bernanke signaled the Fed’s $600 billion Treasury bond-buying program.
The Fed chair insists that the program was successful in increasing stock prices, reducing spreads in credit markets and reducing volatility. He also maintains that it contributed to strengthening labor market conditions, higher rates of payroll and job creation.
Yet, two months after the Fed’s bond-buying program ended, signs point to a worsening, rather than improving, economy.
The most recent GDP figures indicate that the economy grew an anemic 0.8 percent during the first half of the year. Job growth remains far less than necessary to make a dent in unemployment. Worker pay is hardly rising and may very well be overtaken by rising inflation. And U.S. home prices remain depressed, further increasing the number of “underwater” home owners who owe more on their homes than the property is worth.
That’s why Bernanke’s remarks on Friday are eagerly awaited not only by the central bankers, policy wonks and academics attending the Kansas City Fed’s 33rd annual symposium but also the financial markets.
They are looking for a signal from the Fed chair that the nation’s central bank has a plan for the next 12 months to not merely avert the feared double-dip recession, but to surpass the increasingly bearish expectations of the nation’s leading economists.