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An Unofficial Translation of Bernanke's Jackson Hole Speech, Part 2

Translation: I keep saying "accommodative," which means "inflationary," because we have in fact been deflating. No one notices, except futures speculators. We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. Translation: I say "additional monetary easing" because we have been deflating. Nobody notices, except futures speculators. In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly. The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. Translation: We will inflate. This will eventually pop the bond bubble. I am not about to say this in public. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool. Translation: If we could actually forecast accurately the costs and benefits of FED actions, it would help. We can't. But nobody notices. Not even futures speculators. 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. Translation: We can (and will) (1) inflate; (2) issue press releases; (3) drop the rate we pay on excess reserves from 0.25%. If you think 0,25% is not much, you forget about negative rates. We can charge a fee. This will force banks to start lending, at which time the doubled monetary base of October 2008 will start heading towards a doubled M1. You want quantitative easing? You'll get it! A first option for providing additional monetary accommodation, if necessary, is to expand the Federal Reserve's holdings of longer-term securities. Translation: Greenspan created a housing bubble. I can create a bond bubble. Don't think I can't.

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