Bernanke On Recession Watch, Inflation In The Wings

A close look at Ben Bernanke’s testimony in the Senate today show that the man is profoundly worried. He just know how to couch in complex terms.

The chairman hints at what he believes credit will stay tight even if the Fed keeps cutting rates. The good deal is not being passed along to consumers. He mentions "in the latest Senior Loan Officer Opinion Survey conducted by the Federal Reserve, banks reported having further tightened their lending standards and terms for a broad range of loan types over the past three months."

Mr. Bernanke does not seem to like the prospect for housing either. Due to mortgage related problems he believes that "further cuts in homebuilding and in related activities are likely."

All of these negatives lead the man to believe that consumer spending is going to be weak.

He does provide a ray of hope, and that is US exports. He testified "growth in U.S. exports should continue to provide some offset to the softening in domestic demand." Bernanke also believes that the economic stimulus package the the federal government is launching will help the consumer toward the end of the year.

To make the markets more worries, he said the Fed has to watch inflation. It is still waiting in the wings.

Bernanke ended his comments by saying "at present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt."

But, he added that the Fed would have to guard against downside risks. Someone must have asked him if he could spare a dime when he walked over to the Senate building.

Douglas A. McIntyre