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Some investors disappointed with Bernanke’s announcement

Marketplace Staff Aug 26, 2011

Some investors disappointed with Bernanke’s announcement

Marketplace Staff Aug 26, 2011

Stacey Vanek-Smith: Federal Reserve Chief Ben Bernanke just announced that the Fed stands ready to help the U.S. economy, but is holding off help right now. That may be surprising in light of economic news we just got — the GDP grew a measly 1 percent in the 2nd quarter. Gross Domestic Product is a measure of all the goods and services our economy produces. It’s considered the indicator of economic growth.

Our own Nancy Marshall Genzer joins us Live from Washington. Good morning, Nancy!

Nancy Marshall Genzer: Good morning.

Smith: Nancy, let’s talk numbers first. Why was growth so slow in the second quarter?

Marshall Genzer: You know, there are a couple of reasons. For one, exports fell. Also businesses stopped stockpiling things, so their inventories shrank. Their orders to manufacturers were down, and that of course, hurt the manufacturers. And keep in mind, Stacey, today’s numbers are worse than expected. The Commerce Department originally predicted growth of 1.3 percent. That was revised down today, to just 1 percent.

Vanek-Smith: Right, right. And the markets all over the world have been gyrating all week in anticipation of the speech from Fed Chief Ben Bernanke, hoping for some action that might turn the economy around. Are they disappointed?

Marshall Genzer: Yeah, they really wanted him to pull a rabbit out of a hat, Stacey.

Vanek-Smith: We all did!

Marshall Genzer: Yes, we all did. Some people were hoping Bernanke would announce a new round of bond buying today — kind of like what he announced last year at Jackson Hole.

I talked about this with Morris Davis. He’s an economist at the University of Wisconsin, and a former Fed economist. He says he doesn’t see how the Fed can stay on the sidelines much longer.

Morris Davis: The United States might be in for another three to five years of really slow growth, which is not a comforting prospect. So you would figure that policy makers would be as aggressive as the can right now, if they want to avoid another three years of tepid growth.

Stacey, it appears that Bernanke just wants to wait and see if maybe the economy will improve on its own first. Bernanke did leave open the possibility that the Fed might do something to shore up the economy. And he said the Fed’s meeting next month will be held over two days, instead of just one.

Vanek-Smith: Our own Nancy Marshall-Genzer in Washington. Thank you, Nancy.

Marshall Genzer: You’re welcome.

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