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The Fed takes control

The reserve presided by Bernanke is still identifying crisis priorities better than the ECB

The expectations aroused by the appearance of the president of the Federal Reserve, Ben Bernanke, at last Friday's banking convention in Jackson Hole, Wyoming, had to do with the possible announcement of new monetary stimulus measures to curb the deceleration of US economic growth. It will be in mid-September, after the meeting of this central bank's governing board, when we shall learn of possible additional moves aimed at preventing stagnation.

The deceleration is a fact. On the same Friday, the US Department of Commerce announced a downturn in American growth statistics in the second quarter of this year. The US economy has grown less than the Fed itself expected: one percent between April and June, against the 1.4 percent initially estimated. For the first quarter the figure was only 0.4 percent.

These are undeniably weak signals. So, in the absence of serious inflationary threats, it is predictable that the US central bank will turn its attention to another objective: the struggle against unemployment.

The Federal Reserve's attitude since the crisis began in the summer of 2007 contrasts with that maintained by European Central Bank (ECB). The Fed has better identified the real risks, considering that the inflationary threat takes second place to the far more disturbing deceleration of growth and its effects on unemployment. Its flexible attitude was again manifest some weeks ago, when it announced that it would maintain short-term interest rates at a near-zero level until mid-2013.

The ECB, meanwhile, has been hasty not only in raising its interest rates on several occasions, but in subordinating the still very precarious economic and employment recovery to a set of demands for budget adjustment throughout the euro area - which, while necessary, would admit of a wider time-spread in the medium term, as the managing director of the International Monetary Fund, Christine Lagarde, has once again suggested. The result is that, though it was in the American financial system where the crisis emerged, the euro zone is now where instability is most apparent.

The global economic situation has deteriorated so much in recent months, that a situation where the central banks have to come up with further stimulus measures cannot be ruled out. Should this be the case, the Fed would likely again take the lead in accepting this priority, to prevent worse evils. The academic Bernanke is well aware of the consequences that indecision and delay in taking stimulus measures had in the spread of the Great Depression.

Recent evidence in all the advanced economies, and in some of those considered emerging, as well as the stresses in the financial market, adds up to a renewed threat of recession. The abatement of this threat is perfectly compatible with strengthened commitments to a restructuring of public finances in the medium term.

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