Bernanke Calls A Recession, Without The Words

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Ben Bernanke is set to testify on in Washington D.C. before the U.S. House Budget Committee on the economic recovery.  If you look at the prepared comments, it certainly doesn’t sound like the ecoonomy is on the road to recovery and it has all the earmarks of a recession.  We have been maintaining that we were in an unofficial recession since the end of Q1, but the FOMC and government still haven’t gotten around to their policy wording yet.

Bernanke will say he supports a second stimulus package that is aimed at spurring credit access.  He also wants to see ithaving a limited effect on the structural budget deficit.  Bernanke andthe FOMC have in the past talked about growing risks to growth, andtoday Bernanke is calling for some risks of a protracted slowdown afternoting that the economy is likely to be weak for several quarters.

While he believes that there are encouraging signs because of the governmenthelp to stabilize the financial markets and the economy, it is tooearly to fully assess their impact.  He noted "depressed" housing and a verysharp drop in auto sales.  He is talking about spending drops along with a 1.2% gain in unemployment to a level of 6.1% now.

The good news is that the FOMC doesn’t have to worry about inflationanymore.  Bernenake noted that inflation should moderate toward pricestability.  If he’d watched the oil ticker over the last four months hemight have been able to mention a period "relative deflation" withprices lower than in recent quarters but still above historic levels. 

Stay tuned for his comments that were not part of his speech and forwhatever he may say during the Q&A period. So far the DJIA is stillup 209 points to 9,061….

Jon C. Ogg
October 20, 2008