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!
Update II March 28, 2007 2:40 pm
Bernanke Keeps `Inflation Bias,’ Sees Growth Risks
Craig Torres and Scott Lanman
Bloomberg, March 28 2007
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.
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.
The economic outlook
Before the Joint Economic Committee, U.S. Congress
Testimony of Chairman Ben S. Bernanke
March 28, 2007
Bernanke Expects Sustainable Growth
Doesn’t See Subprime Turmoil Spreading
March 28, 2007 10:53 a.m.