Fed Chairman Ben Bernanke gave his first real speech today at the International Monetary Conference in Atlanta, Georgia in weeks. He argued that the economic downgrade persists, as does the “extended period,” as does the “temporary” effect of inflation. Our take is that Bernanke could have issued the following outlook without showing up: “We are very lightly downgrading the economy again, temporarily, but we still have a stance that the inflationary pressures are transitory.”
The growth in 2011 is so far “somewhat slower” than expected. Bernanke also feels that accommodating policies are still needed to get the economy on track and the current conditions warrant low interest rates for that “Extended Period” of time.
Bernanke mentioned that Japan’s quake and tsunami created supply chain disruptions which is hampering growth. There has been a loss of growth in the labor markets and the food and energy prices are weighing on consumer confidence. Aggregate output increased at only 1.8 percent at an annual rate in the first quarter, and supply chain disruptions associated with the earthquake and tsunami in Japan are hampering economic activity this quarter.
Household incomes have been boosted and there have been gains in equity values. Bernanke still expects that inflation will not persist and should be subdued over the medium-term. His long-term inflation expectations remain stable. Most importantly, Bernanke said that the Fed will monitor prices and will also take action to keep inflation well under control if needed.
As far as quantitative easing, Bernanke sees the effects of stimulus waning and he is sticking with the stance that Fed policy has had little impact on prices.
As far as the words “recession” and “contraction”… the “R-word” only appeared in the past tense and the “c” word only appeared once as a theoretical reference.
OK, enough on that… the full speech can be read here.
JON C. OGG
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