Why Bernanke has become irrelevant

August 31, 2012, 8:49 PM UTC

FORTUNE — After months and months and months of speculation, Federal Reserve chairman Ben Bernanke finally appears to be ready to step in and help boost the economy. Unfortunately, Bernanke, and the Fed, may no longer matter.

The economy started to show signs of slowing again back in May. If Bernanke had acted then, the Fed would have been able to keep the recovery going. Indeed, the Fed’s efforts so far appear to have worked. As Bernanke said in his speech on Friday, the central bank’s two controversial rounds of buying bonds – so-called quantitative easing – has lowered long-term interest rates by as much as 1.65 percentage points, and added as many as 2 million jobs.

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But everything has a window of opportunity, and Bernanke may have missed his. Top Bank of America U.S. economist Ethan Harris, for instance, believes at this point even if the Fed embarks on another ambitious round of bond buying, the number of jobs produced by the economy each month, which jumped in July, could soon slump back down to zero, or close to it. A recent Congressional Budget Office analysis of fiscal policy came to the same conclusion: Even if the Fed acts, other things now matter more. We’re headed for another recession.

The biggest problem is the Fiscal Cliff. Pretty much everyone agrees that at this point, if left in place the mix of tax increases and spending cuts that are set to begin in January will send the economy into recession. If the economy had been growing stronger at this point, that might have not been the case.

Many think that the President and Congress will strike a deal after the election to put off the worst of the tax increases and spending cuts. But Harris thinks that will be too late. He believes companies will cut spending long before that in anticipation of the slowdown.

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What’s more, it’s not clear there will be a deal. Romney, especially after picking budget hawk Paul Ryan, seems to have made cutting the deficit a big part of his campaign. So if he becomes President, it’s unlikely in his first few months in office he would strike a deal that would greatly increase the deficit, as putting off the fiscal cliff surely would. Obama would likely be more willing to make a deal. But his reelection could make Republicans even more resolute not to work with him.

Another problem is the banks. Lower interest rates are supposed to spur lending and borrowing, and boost the economy. But Bernanke’s recent Fed programs have pressured banks’ so-called net interest margin, which is the difference between what they can borrow at and what they can lend at. A study this week from Keefe Bruyette and Woods, an investment bank that specializes in financial companies, found that bank profitability is lower now than it has been at any time in the past two decades. As a result, it’s unlikely that banks will be looking to rush out and make more loans, especially at a time when regulators are forcing them to hold more capital.

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In his speech, Bernanke said it was clear that past moves by the Fed have boosted the stock market, which he said is important because that can spur confidence and spending. But, there too, it’s unclear how much more the Fed can do. We saw that clearly on Friday. Stocks rose on the news of Bernanke’s speech, but at mid-day the Dow was up only 65 points, or less than 1%. For the week, it looks like the market will end up down.

The average stock in the Standard & Poor’s 500 already trades at a price-to-earnings multiple of 17. Given that the economy is only predicted to grow at about 2% a year before inflation, which itself is low, it’s not clear that valuations, or earnings, could go any higher, even with low-interest rates.

Throw in the debt problems in Europe and the looming slowdown in China, and it seems pretty clear that Bernanke at this point will have a very hard problem providing much of a boost the economy. It is of course clear that we need him to do all that he can. But what he can do at this point might not be very much.