Federal Reserve Chairman Ben Bernanke testified today before the House Budget Committee. Although his testimony is fairly succinct by itself, I have found that few people actually read Congressional testimony, so here is a summary. Where possible, I use the Chairman’s words. His comments on the budget (last section) are getting the most press attention.
The U.S. Economy
“Moreover, the economy–supported by stimulative monetary policy and the concerted efforts of policymakers to stabilize the financial system–appears to be on track to continue to expand through this year and next.”
- The Fed’s April forecast projected that GDP would grow around 3.5% this year, and “at a somewhat faster pace next year.”
- Economically and politically critical: “This pace of growth, were it to be realized, would probably be associated with only a slow reduction in the unemployment rate over time.”
- “In this environment, inflation is likely to remain subdued.”
He argues against a “double dip recession”:
Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the recovery in economic activity. Real consumer spending has risen at an annual rate of nearly 3-1/2 percent so far this year, with particular strength in the highly cyclical category of durable goods. Consumer spending is likely to increase at a moderate pace going forward, supported by a gradual pickup in employment and income, greater consumer confidence, and some improvement in credit conditions.
He thinks business investment will likely be strong.
He identifies the ongoing overhang of excess housing supply as well as commercial buildings as a “significant restraint on the pace of recovery.” He also cites “pressures on state and local budgets, though tempered somewhat by ongoing federal support” as another restraint.
On the employment picture he emphasizes that it’s going to take a long time to close the employment gap:
Private payroll employment has risen an average of 140,000 per month for the past three months, and expectations of both businesses and households about hiring prospects have improved since the beginning of the year. In all likelihood, however, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009.
He doesn’t sound too worried about inflation:
But aside from these volatile components, a moderation in inflation has been clear and broadly based over this period. To date, long-run inflation expectations have been stable …
Developments in Europe
“U.S. financial markets have been roiled in recent weeks by these developments