Shyamal Banerjee/Mint

Shyamal Banerjee/Mint

Ourview | Holding out hope, comfort

Ourview | Holding out hope, comfort

Analysts had been playing down the significance of US Federal Reserve chairman Ben Bernanke’s speech at the Jackson Hole conference, pointing out that the chances of his announcing a third round of quantitative easing (QE) were slim. As expected, he did not announce QE3, but that didn’t stop US equities from rallying. One reason could be short-covering. But the speech also held out hope and comfort to the markets.

Shyamal Banerjee/Mint

At least initially, Bernanke’s speech has been well-received by the equity market. The fact remains, however, that he has hardly said anything new. One clue can be found in a rally in gold, which indicates that the level of uncertainty in the market remains very high.

Perhaps more important is the Fed chairman’s insistence that most of the policies that sustain economic growth in the long-run are outside the province of the central bank. Simply put, he was alluding to structural impediments in the US economy that need to be addressed, fairly and squarely, by effective government policy. That is a message that applies not only to the US, but to policymakers around the world, whether they are euro zone governments grappling with crisis, Chinese policymakers trying to shift their focus from investment-led growth, or an Indian government trying to achieve double-digit growth. The real message from Jackson Hole is that the time for band-aids is over and structural reform is essential.

Will the US heed Bernanke and embark on policy changes? Tell us at views@livemint.com

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