If you were looking for a strong tone from Ben Bernanke, he may have given you what you wanted to hear. Today’s speech to the National Association for Business Economics hinted at a very high chance of rate cuts in the near future. He discussed the downside risks to growth have increased while price outlook has improved. Bernanke now expects economic activity to be subdued for the rest of 2008 and into 2009. He also noted that the cost of credit has spiked if it is even available and that there is no liquidity in the credit markets. He also outlined the extraordinary stress on the global markets which are seeking new methods to reduce funding pressures as the need to stabilize the economy is great.
Bernanke also discussed how credit woes and decline in asset values maytake a heavy toll. He noted that new reserve interest power will beused this week and the Treasury may hold TARP assets for an appreciableamount of time. Bernanke also noted that this TARP program may be toeveryone’s benefit.
One interesting note is that Bernanke did mention WaMu and Lehman and he also noted that negotiations over Wachovia Corp. are continuing.
It was just a few weeks ago the Bernenke had hinted of raising rates, but that was before all hell broke loose. The world changes fast, particularly when it is de-leveraging.
Jon C. Ogg
October 7, 2008