Bernanke Sees Hope for the Future
Federal Reserve Chairman Ben S. Bernanke gave testimony today on the economy and financial markets before the Committee on Banking, Housing, and Urban Affairs, and well as the U.S. Senate.
Chairman Bernanke expressed that downside risks remain in the areas of the credit, housing and employment markets, which will probably lead to further interest rate reductions. Bernanke expects sluggish growth to continue for a period, until the new fiscal stimulus policy takes effect.
He expressed concerns that the housing and labor markets may continue to weaken more than expected. Credit is also expected to tighten even more so.
Bernanke signaled further cuts when he said, “The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.” Recent actions indicate that the timely response to extreme downside risk information is usually a call for further rate cuts. Rates have been cut by 2.25% since September.
Monetary policy changes take effect after time passes. It’s effects are seldom immediate. Bernanke expects the outlook to improve once recent actions combined with the fiscal stimulus policy start to take effect later in the year. For now economic uncertainty and downside risks remain, and sluggish growth is expected to last for at least a short while.
Bernanke expects business and consumer spending to improve for the third and fourth quarters into the first quarter of 2009. He is also expecting inflation issues to moderate later this year.
Other economic data indicates that the U.S. trade deficit has narrowed. This unexpected narrowing of the trade deficit was a drop of about 6.9% for December. The trade deficit is the gap between U.S. imports and exports. It now totals $58.8 billion, which is down from $63.1 in November. This information may cause an adjustment in the poor GDP reports that showed minimal growth at 0.6% earlier this year. The weakness of the dollar has given a slight boost to the demand of United States exports. This demand is slightly offsetting the higher cost of imports for the U.S.
