Redstate

Posted at 11:54pm on Apr. 2, 2008 The R-Word

By Pejman Yousefzadeh

It is finally mentioned by the Federal Reserve Chairman:

Federal Reserve Chairman Ben Bernanke said Wednesday a recession is possible and policymakers are "fighting against the wind" in trying to steady a shaky economy. He would not say if further interest rate cuts are planned.

Bernanke's testimony the Joint Economic Committee of Congress was a more pessimistic assessment of the economy's immediate prospects than a report he delivered earlier this year. His appearance on Capitol Hill came amid a trio of economic slumps in the housing, credit and financial areas.

"It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States' economic health. Under one rule, six straight months of declining GDP, would constitute a recession.

Bernanke said "a recession is possible" but he also said he expects more economic growth in the second half of this year and into 2009, helped by the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive reductions to a key interest rate.

"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," Bernanke said.

Underlying economic conditions appear to continue to be strong, so I take seriously Bernanke's statements that any recession would likely be mild. I wish, however, that he had slammed the stimulus payments instead of extolling them. At the risk of being repetitive, the stimulus payments do nothing to change taxpayer expectations concerning long term income, and as such, they will not have the desired effect of spurring consumer spending. Instead, they will be used to pay bills and pay down debt.

Is that valuable to individual taxpayers? Sure it is. But a stimulus it ain't.

Posted in Ben Bernanke | Economic Forecasting | Economy — Comments (0)/ Email this page » / Read More »

Posted at 6:59pm on Jan. 10, 2008 Everyone Likes Ben Bernanke Today

By Pejman Yousefzadeh

With the economy facing the possibility of a recession, people are consistently looking to the Federal Reserve to lower interest rates. Today, the Fed Chairman indicated quite clearly that he and the Fed are prepared to do just that:

Stocks rose in volatile trading Thursday after Federal Reserve Chairman Ben Bernanke soothed investors by stating that the central bank is ready to lower interest rates to shore up the economy.

The Dow Jones industrial average initially jumped more than 130 points on Bernanke's comments but bobbled up and down, perhaps because investors realize that it will take more than rate cuts to restore the economy's upward momentum. Still, Bernanke's comments appeared to reassure a market that has stumbled since the start of the year amid growing evidence that the economy is weakening.

The Fed chief said the central bank is prepared to act aggressively to rescue a weakening economy.

"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.

Jim Herrick, manager of equity trading at Baird & Co., said, "We're seeing this pop here, but I think it's temporary."

He added that many investors have been betting for some time that the Fed will lower rates by a half-point at their next meeting. "There's still subprime issues. We still have concerns about earnings, and the mortgage market."

Eventually, of course, the Fed will have to confront and counter the threat of inflation, especially in the food and energy sectors, which are even more volatile than usual. But for now, giving the economy a jump start is a major issue and the Fed is right to contemplate a hefty rate cut.

Posted in Ben Bernanke | Economy | federal reserve | Interest rates — Comments (3)/ Email this page » / Read More »