Ben Bernanke before the Joint Economic Committee

Ben Bernanke spoke today before the Joint Economic Committee.

Key quotes from Fed Chairman Bernanke’s testimony before the Joint Economic Committee:

The Economy

“Supported by stimulative monetary and fiscal policies and the concerted efforts of policymakers to stabilize the financial system, a recovery in economic activity appears to have begun in the second half of last year.”

“On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters.”

“To be sure, significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments.”

“if the pace of recovery is moderate, as I expect, a significant amount of time will be required to restore the 8-1/2 million jobs that were lost during the past two years.”
On inflation
“recent data continue to show a subdued rate of increase in consumer prices.”

“Long-run inflation expectations appear stable; for example, expected inflation over the next 5 to 10 years, as measured by the Thomson Reuters/University of Michigan Surveys of Consumers was 2-3/4 percent in March, which is at the lower end of the narrow range that has prevailed for the past few years.”
On financial market conditions

“Financial markets have improved considerably since I last testified before this Committee in May of last year.”

“The Federal Reserve also recently completed its purchases of $1.25 trillion of federal agency mortgage-backed securities and about $175 billion of agency debt. Purchases under these programs were phased down gradually, and to date, the transition in markets has been relatively smooth.”

“On net, the financial condition of banking firms has strengthened markedly during recent quarters.”

“Despite their stronger financial positions, banks' lending to both households and businesses has continued to fall.”
On fiscal policy

“we as a nation face the difficult but essential task of achieving longer-term sustainability of the nation's fiscal position. The federal budget deficit is on track this year to be nearly as wide as the $1.4 trillion gap recorded in fiscal year 2009. To an important extent, these extremely large deficits are the result of the effects of the weak economy on revenues and outlays, along with the necessary actions that were taken to counter the recession and restore financial stability. But an important part of the deficit appears to be structural; that is, it is expected to remain even after economic and financial conditions have returned to normal.”
Bottom Line

While Bernanke did not specifically repeat the FOMC’s extended period language in this testimony, we see no hint of the impending removal of this forward-looking guidance in the April 28th policy statement. Note that Bernanke did discuss the conditions that, in the opinion of the majority at the Fed, warrant an extended period of exceptionally low rates, saying that significant labor market slack will remain for a long time given expectations of a moderate recovery, inflation remains subdued, and inflation expectations appear stable. Bernanke also said that the economy recovery faces “significant restraints.” We continue to expect the Fed to leave rates unchanged this year.

Source RDQ


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