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Bernanke Testimony

Ben Bernanke is testifying on "The economic outlook" before the Joint Economic Committee, U.S. Congress (Text of speech here).

As we noted last week in FOMC Statement, Revised for Reality, the Fed is vey much aware of the box they are in.

Here's the highlights from BB's testimony:

• Economic growth in the United States has slowed in recent quarters to an annual rate of roughly 2 percent.

• The principal source of the slowdown in economic growth has been the substantial correction in the housing market.

•  The near-term prospects for the housing market remain uncertain; Developments in subprime mortgage markets raise some additional questions about the housing sector. 

• Turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, and the implications of these developments for the housing market as a whole are less clear.

•  Business spending has also slowed recently. Expenditures on capital equipment declined in the fourth quarter of 2006 and early this year.  

• The weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy.  

• Outside the United States, economic activity in our major trading partners has continued to grow briskly.

• Although core inflation seems likely to moderate gradually over time, the risks to this forecast are to the upside.

Lastly, the risks to this forecast:

"This forecast is subject to a number of risks. To the downside, the correction in the housing market could turn out to be more severe than we currently expect, perhaps exacerbated by problems in the subprime sector. Moreover, we could yet see greater spillover from the weakness in housing to employment and consumer spending than has occurred thus far. The possibility that the recent weakness in business investment will persist is an additional downside risk. To the upside, consumer spending--which has proved quite resilient despite the housing downturn and increases in energy prices--might continue to grow at a brisk pace, stimulating a more-rapid economic expansion than we currently anticipate."

This testimony makes clear (to me at least) drew precisely the wrong conclusion from the FOMC statement last week. Bernanke is now correcting that error via this speech.

Thanks for coming by! We'll see y'all agin real soon!

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Update II March 28, 2007 2:40 pm

Bloomberg is even more stark:

Bernanke Keeps `Inflation Bias,' Sees Growth Risks
Craig Torres and Scott Lanman
Bloomberg, March 28 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=arfy3wF82Hk4&

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Update March 28, 2007 11:09 am

WSJ has an update:

"Federal Reserve Chairman Ben Bernanke said Wednesday that despite risks to both growth and inflation, the current stance of policy remains the right one to foster sustainable U.S. economic growth and a gradual easing of price pressures.
[Ben Bernanke]

That suggests that despite recent signs of subpar economic growth, the Fed isn't inclined to lower rates anytime soon, especially with underlying inflation, in Mr. Bernanke's words, "uncomfortably high."

"To date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation," Mr. Bernanke said in prepared testimony to the Joint Economic Committee of Congress.

-Bernanke Expects Sustainable Growth

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Source:
The economic outlook
Before the Joint Economic Committee, U.S. Congress
Testimony of Chairman Ben S. Bernanke
March 28, 2007 
http://www.federalreserve.gov/boarddocs/testimony/2007/20070328/

Bernanke Expects Sustainable Growth
Doesn't See Subprime Turmoil Spreading
BRIAN BLACKSTONE
March 28, 2007 10:53 a.m.
http://online.wsj.com/article/SB117509212720351831.html

Wednesday, March 28, 2007 | 10:49 AM | Permalink | Comments (34) | TrackBack (0)
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Comments

Feb Durable Goods were weaker than expected following the big drop in Jan. The headline # was up 2.5% vs the consensus of 3.5% and ex transports fell .1% vs an expected gain of 1.8%. The Jan # ex transports were down 4%, revision left unch. Non Defense Capital Goods ex Aircraft were down 1.2% following a 7.4% decline in Jan (revised from -6%). This pure capital spending # is now down 4 out of the last 5 months so notwithstanding healthy corporate balance sheets, companies are very reluctant to invest in light of the changing economic landscape. Actual shipments of durable goods, which gets directly plugged into GDP, was down .8% following a decline of 1.5% in Jan. GDP could print below 2% for Q1.

Posted by: Peter | Mar 28, 2007 11:03:06 AM