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Weak Jobs Report Puts Ball in Fed's Court

12:00 AM, Sep 8, 2012 • By IRWIN M. STELZER
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These low interest rates drive investors to seek higher returns on their money by buying riskier assets such as shares and commodities, driving up prices and the profits of traders. But what is good for investors is not necessarily good for consumers. Oil and food are among the commodities that rise in price when the Fed eases, increasing the pressure on consumers’ budgets.

Support for further easing is far from unanimous, even on the monetary policy committee. Those who feel the Fed has done enough argue that the economy is not in sufficiently bad shape to warrant another round of QE3—in effect, printing money—or any extraordinary measures to give the economy a shot in the arm. Consumers have been paying down debt and are stepping up spending. Homebuilders are complaining that they can’t find enough skilled carpenters and plumbers, or workers with the skills required by the latest building technologies to keep up with the demand for new houses. And August auto sales increased by some 20 percent: the average car or truck on the road is now more than eleven years old, and the increased fuel efficiency of new vehicles makes it attractive to replace older ones now that gasoline prices are again on the rise.

Moreover, fear of a recession has receded. The Organisation for Economic Co-Operation and Development predicts that the American economy would grow at an annual rate of 2.3 percent this year. Since the first half rate was 1.7 percent, the OECD is guessing that the economy will chalk up something like a 3 percent growth rate in the second half of the year.

Perhaps best of all, Bernanke might finally get his wish that the politicians bury their hatchets—not in each other’s backs—and cut a deal to avoid the year-end tax increases and spending cuts that would propel the economy over the fiscal cliff. The Bush tax cuts would be left in place, and spending reductions postponed for six months to give the new congress time to fashion a combination of spending cuts and tax increases that will bring the deficit under control.

Of course, wanting to do something to stimulate the economy and being able to do so are two different things. Interest rates are already in negative territory when inflation is taken into account, Bernanke can’t do much to end the uncertainty that has businesses sitting on their cash piles, and he can’t do anything to reduce “the headwinds” to America’s recovery blowing over from Europe and China. But the odds are that he will use all the tools in his monetary kit to boost growth—and invent some new ones.   

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