Bernanke Pledges Fed Will Act in a `Timely Manner' (Update4) By Craig Torres and Scott Lanman Enlarge Image/Details Feb. 27 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled the U.S. central bank is prepared to lower interest rates again even amid signs of accelerating inflation. The Fed ``will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' Bernanke said in testimony to the House Financial Services Committee in Washington. Bernanke's remarks may reinforce investors' expectations that policy makers will lower rates further to shore up the faltering economy. While officials have expressed concern that inflation is accelerating, Bernanke indicated he shares Vice Chairman Donald Kohn's view that financial-market turmoil and slowing growth pose the ``greater threat.'' Bernanke's testimony came as government reports today showed the U.S. expansion, now in its seventh year, is in peril. Durable-goods orders fell 5.3 percent, more than forecast, in January as companies cut spending. New-home sales fell last month to the lowest level since February 1995 and house prices slid by a record 15 percent from a year ago. ``The Fed is in full risk-management mode, which means it has to prioritize financial market stability and growth over inflation in the near term,'' said Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago. ``The discussion of inflation and inflation expectations, however, effectively sets the stage for a fairly quick normalization of rates once growth stabilizes.'' `Mistakes Were Made' Congress has accused the central bank of failing to adequately supervise mortgage lending and protect consumers. Committee Chairman Barney Frank, a Massachusetts Democrat, said ``excessive deregulation'' was the ``single-biggest cause'' of the downturn. Later in the hearing, Bernanke said: ``I think there were mistakes in terms of regulation and oversight.'' Bernanke referred to ``downside'' risks for the economy four times in his testimony, and noted that data since the last Fed meeting in January pointed to ``sluggish'' growth. Policy choices have also become more complicated as energy and commodity prices rose in recent weeks, he indicated. Stocks advanced after Bernanke's remarks, with the Standard & Poor's 500 index gaining 0.3 percent to 1,385.84. Inflation is picking up and the public's expectations for prices may also be rising, Bernanke said. He reiterated remarks made to a Senate hearing on Feb. 14 indicating the Fed will increasingly take account of the inflation outlook later in the year as the economy stabilizes. ``Further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month,'' Bernanke said. Prices Climb Consumer prices last year surged 4.1 percent, the most in 17 years, spurred by higher fuel and food costs. A government report yesterday showed the 12-month increase in wholesale costs accelerated to 7.4 percent in January, the biggest jump since 1981. Risks to the outlook include ``the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further,'' the Fed chairman said. Fed's Effectiveness Bernanke said pressures in credit markets have offset some of the Fed's interest-rate cuts. ``Even as the Fed has lowered interest rates and as the general pattern of interest rates has declined, the pressures in the credit markets has caused greater and greater spreads, particularly for risky borrowers,'' Bernanke said in response to a question from Representative Luis Gutierrez, an Illinois Democrat. Traders anticipate the central bank will lower the benchmark rate by at least half a point by the end of the next meeting, on March 18, futures prices show. Officials have lowered the rate by 2.25 percentage points since September, to 3 percent. A half-point reduction to 2.5 percent would bring the rate adjusted for inflation, less food and energy, to almost zero. Bernanke, 54, is in the seventh month of a credit crisis that began with rising delinquencies on subprime mortgages, while also grappling with the economic impact of the worst housing recession in a quarter century. Banks are making it tougher to get loans after financial companies posted $162 billion in asset writedowns and credit losses since the beginning of 2007. Inflation Expectations In its separate monetary-policy report released with the testimony, the Fed said near-term inflation expectations, measured by surveys, ``rose somewhat in 2007 and early 2008, presumably because of the increase in headline inflation.'' Longer-term expectations ``changed only slightly.'' ``A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability,'' the Fed chairman said. Economic reports since the Fed last met on Jan. 29-30 showed the first decline in U.S. payrolls in more than four years in January and a slide this month in consumer confidence to the lowest level since 2003. ``The economic situation has become distinctly less favorable since the time of our July report,'' Bernanke said. Still, the $168 billion stimulus package enacted by Congress and signed by President George W. Bush this month and continued gains in exports should help growth, he said. `Little Momentum' In the semiannual report, the Fed said that the U.S. economy ``seems to have entered 2008 with little momentum.'' Labor demand ``has slowed further of late,'' it said. Bernanke focused the final pages of his testimony on the Fed's efforts to strengthen consumer protections and prevent foreclosures. He said in answering questions that the final rules will be released before July.
Bernanke is an asshole. I'd love to debate his Princeton-pedigreed, egotistical, insincere, incompetent ass any day. He can take all of his academic credentials, Curriculum Vitae, much-lauded historical 'studies,' and laughable claim to want balance the risks to the U.S. economy, and shove them directly up his ass. I'd love to pelt him with eggs, one after the other, as he tried to incoherently answer my questions, and then charge him $1 USD each for them. No, I'd charge him 1 Euro each, come to think of it...
he isn't cutting rates to save equity bag holders, he is trying to recapitalize the hemorrhaging banks that are teetering on collapse. That is why he doesn't give 2 shits about inflation at this point. Of course he would never say that in fear of creating a run on cash, which would certainly push the situation over the edge.
Agreed 100% For some reason, most of the posters on ET bagging on Bernanke and his attempt to pump some liquidity into the banking system just don't get it. These people really have no clue as to the MAGNITUDE of what is going on here . . .
I disagree. I think that the markets already understand the position that the FED is in, and have had this understanding for awhile now. It's gonna be a painful process; no doubt about it. But there really are no other "options" for the FED to pursue at this point in order to clean up this mess. Again, the 2-year Treasury Note yield needs to start trading ABOVE the Fed Funds rate. This will confirm that the bond market is beginning to believe that the FED's efforts are finally taking hold.
2 year yields will sky as soon as foreign banks stop trying to float this house of cards......... who else would buy a yield of 2% w/ inflation at 8% and the currency tanking 1% a day?
The jury is still out. Otherwise, 2-year yields would not be where they are, nor would the TIPS be where they are.
If all the 401K investors that have been brainwashed into "modern portfolio theory", knew the magnitude, this market would crash as they tripped over each other to get into cash. American "investors" are clueless at this point.
Until people actually start to lose their jobs ( or they see their "neighbor" lose theirs ) the guys that you see frequenting your local sports bar on the weekends will continue to pay for $3.50 Coors Light and gas at $3.60 per gallon. You are correct. They have no clue.