Anyone doing personal financial planning these days is thinking about the economy. Here’s a story from today’s online Wall Street Journal that should make you feel better about things.
By JON HILSENRATH
JACKSON HOLE, Wyo. — Central bankers at the Federal Reserve’s annual retreat in the Grand Tetons are breathing easier about the outlook for the global economy than just a few months ago.
From left, Bank of Japan Gov. Masaaki Shirakawa, ECB Chief Jean-Claude Trichet and Fed Chairman Ben Bernanke at the retreat Friday in Jackson Hole, Wyo.
As he spoke, the latest bit of good news was released: Sales of existing homes in the U.S. jumped 7.2% in July, the fourth straight rise. European Central Bank Chairman Jean-Claude Trichet echoed Mr. Bernanke’s remarks, saying it was “almost miraculous” that financial officials around the world moved as quickly as they did after the shocks of September.
But Mr. Bernanke cautioned that “strains persist in many financial markets” and that “the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
Stanley Fischer, governor of the Bank of Israel and a prominent macroeconomist, emphasized the uncertainty that lingers. “Much remains to be done, not least in bringing banking systems back to health, and there are good — though not conclusive — reasons to fear a substandard recovery,” he said.
Three economists from the Bank for International Settlements, the central bankers’ central bank based in Basel, Switzerland, said at the conference that it could take until the second half of 2010 before output in some of the economies most affected by the financial crisis returns to precrisis levels. Some economists at the meeting thought that too optimistic.
Signs of economic recovery put central bankers in a delicate position: They must pull back from their rescue programs and raise interest rates in time to avoid inflation but not so soon that they kill the recovery in its infancy.
The Fed has begun allowing some of its rescue programs to expire. But with the economy burdened by high unemployment, fragile housing and banking sectors, and excess manufacturing capacity, officials don’t foresee raising interest rates any time soon.
The atmosphere in Jackson Hole was palpably less tense than the previous two years. Mr. Bernanke flew in Thursday and set off on a hike with Fed Vice Chairman Donald Kohn, Fed governor Kevin Warsh, a security detail and Fed staff.
Last year, Fed officials spent most of their time at Jackson Hole in a makeshift command center, plotting how to respond to the crisis. The command center is ready at this meeting but hasn’t seen much use.
Mr. Bernanke said the multitude of Fed programs launched since last year’s collapse of Lehman Brothers has diffused the panic. When finance ministers and central bankers from the world’s biggest economies committed to not allow any other big financial institutions to fail in October, he said, it proved to be a “watershed” event that helped to turn short-term credit markets toward recovery. He credited other programs — such as an effort to restore issuance of debt securities backed by auto loans and credit-card debt — with helping to revive some markets.
“History is full of examples in which the policy responses to financial crises have been slow and inadequate, often resulting ultimately in greater economic damage and increased fiscal costs,” Mr. Bernanke said. “In this episode, by contrast, policy makers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation.”
