Photo: Bank Of Italy
We just had a horrifying thought: Mario Draghi is doing better than Bernanke.This is horrifying since normally ECB chiefs are the punching bags of the world, but bear with us for a moment.
Both of them get blasted for not doing enough as their respective economies wilt on the vine.
But Draghi has a good excuse. He has a long game to play. He’s not interested in using monetary policy as a palliative to help European leaders avoid the difficult question of whether they need to fix the broken structural problems facing the Eurozone. And by structural problems, we mean the lack of transfers and fiscal integration.
Draghi might cut more, but he can’t go whole hog into QE mode, since that does create a moral hazard problem for governments that would then drag their feet on making tough decisions (and again, we’re not talking about austerity or labour market reform), but the tough decisions to basically turn over fiscal sovereignty to the greater Europe (or Germany).
But Bernanke has no such long game, or at least not legitimately.
The Fed is badly missing on half of his mandate, unemployment, and he’s still looking for excuses not to ease further.
Here’s a good Nomura summary of his statement today:
With respect to QE, Mr. Bernanke is focused on economic growth and the labour market. He explained why the May employment report may not have tipped the balance to further easing: “This apparent slowing in the labour market [in April and May] may have been exaggerated by issues related to seasonal adjustment and the unusually warm weather this past winter. But it may also be the case that the larger gains seen late last year and early this year were associated with some catch-up in hiring on the part of employers who had pared their workforces aggressively during and just after the recession. If so, the deceleration in employment in recent months may indicate that this catch-up has largely been completed, and, consequently, that more-rapid gains in economic activity will be required to achieve significant further improvement in labour market conditions” (see US Special Report: Beyond weather payback). Mr. Bernanke said the key question Federal Reserve officials will need to answer is, “Will economic growth be sufficient to achieve continued progress in the labour market?” If insufficient, he said, “we should look to try to achieve continued improvement,” i.e., with more asset purchases.
So while neither the ECB or the Fed are doing as much as theory might indicate they should, we can understand Draghi’s political misgivings (and he does use his power to make change, as he did last year when he basically forced Berlusconi out of Italy by letting rates rise uncomfortably).
With Bernanke it’s a pure own goal.
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