Banking, finance, and taxes
Bernanke: Downgrading Growth Continues
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Ben Bernanke is testifying this morning before the Joint Economic Committee, and his speech is titled “Economic Outlook and Recent Monetary Policy Actions.” Today should be taken as yet one more opportunity to downgrade the economic growth prospects.
There are a few takeaways that should be noted. Bernanke claims that the Federal Reserve is monitoring the economy and is ready to take more steps. He urges lawmakers to consider 4 key goals and noted that labor, housing, tax, and trade can all help the economy. He also noted that monetary policy can be powerful but that there is no panacea right now.
The downgrade comes in the form that the recovery is “much less robust than we hoped” and that the growth is still lower than expected in June (no change from September 21 FOMC statement). Somehow some way, Bernanke sees growth more rapid in the second half than the first but persistent factors are restraining the recovery.
Bernanke also noted that Greece’s debt woes are a significant source of stress for the markets and that Europe’s current crisis poses ongoing risks to U.S. growth. He also noted that the government sector drag is weighing on the U.S. economy.
The good news is that inflation moderated as Bernanke had promised, but that may be due to other reasons than Bernanke was hoping for.
If you look through the testimony, the growth that has been seen is phantom growth: “Recent revisions of government economic data show the recession as having been even deeper, and the recovery weaker, than previously estimated; indeed, by the second quarter of this year.. aggregate output in the United States still had not returned to the level that it had attained before the crisis. There was still a light defense of the improvements that the banks have made on their balance sheets.
Sorry to say this… Bernanke did not tell you anything new or unexpected here. Markets will have to hang on to comments from the Q&A period.
Bernanke’s full prepared remarks are here.
JON C. OGG
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