Ben Bernanake as Odysseus?
Folks,
Thought you would enjoy this clip from the Wall Street Journal today, July 29.
Phil
Economy Following the Odyssey of Ben Bernanke By DAVID WESSEL July 29, 2006; Page A2 http://online.wsj.com/article/SB115413539979621147-search.html? KEYWORDS=odyssey&COLLECTION=wsjie/6month In Homer, Odysseus had to sail between Scylla, a sharp-toothed man- eater, and Charybdis, who drank and belched waters creating treacherous whirlpools.
In monetary policy these days, the captain of the Federal Reserve, the bearded Ben Bernanke, faces his own challenge sailing between accelerating prices and a decelerating economy. Steer away from inflation by raising interest rates, and he risks swamping the economy. Steer away from painfully slow growth, and he risks unleashing the inflation demon.
Next week brings Mr. Bernanke important clues to plot his course. On Tuesday comes the monthly survey of factory purchasing managers, while Thursday brings the report from big retailers on July cash- register sales. Then, at 8:30 a.m. Friday, the government releases its count of how many Americans were employed — and how many weren’t — in July.
All will give Mr. Bernanke more of the numbers he says the “data dependent” Fed needs to decide whether to raise short-term interest rates another notch on Aug. 8 — or take the long-discussed pause in a campaign that has taken rates to 5.25% today from 1% in June 2004.
Friday’s government snapshot of the second-quarter economy highlights the twin threats. Growth slowed to a 2.5% annual pace, so sluggish that unemployment would rise if it persisted. But the Fed’s favorite price-inflation gauge turned up, as did the government’s broadest measure of wage and benefit costs.
Proliferating signs that the economy is slowing more than the Fed expects could lead Mr. Bernanke to steer away from another rate increase. That’s what financial markets were betting after Friday’s reports.
But the Labor Department jobs report due next Friday is particularly important. It will tell Mr. Bernanke how many new jobs were created in July (the June count was a disappointing 121,000), how many more or fewer workers were unemployed and looking for work (last number a low 4.6%), and how fast wages of production and other nonsupervisory workers are climbing (up only 3.9% over the past year, not enough to keep up with inflation.)
The report matters for several reasons. It’s big: It is based on surveys of 60,000 households and 160,000 government and private employers covering 400,000 different work sites. It’s fresh — that is, it isn’t based on previously reported surveys, which is why Wall Street finds it so hard to forecast accurately. And it can change how financial markets view the economy — and the Fed’s likely response — in an instant.
Lackluster hiring, rising unemployment and slow-growing wages would strengthen the case against raising rates in August. The opposite would strengthen the case. And if the picture is mixed, well, that is why Mr. Bush hired a brainy economist for the job.
Odysseus and his ship, by the way, avoided both Scylla and Charybdis. But he lost one man to each of Scylla’s six heads.