Bernanke Testimony on the Economic Outlook
First, here's a video and link to a text version of his prepared testimony:
Download RealPlayer if the video is not playing above.
The Fed is continuing to communicate
the meaning of a pause in rate hikes should it occur, indicating that the Fed is
looking to pause once incoming data on expected growth and inflation support
such a move. Repeating
what Tim Duy said
in a recent Fed Watch:
Growth is expected to moderate in the months ahead, easing inflationary pressures and allowing the Fed to pause in the near future. But “pause” does not mean “done.”
And Bernanke tried to convey that message as well. For example, the inflation risk still appears to be a concern, i.e. he did not say that after a pause rates could go either way, though surely the target rate could be lowered if a sudden change in the outlook materialized. He makes clear that inflation remains a concern and that little has changed the outlook since the last FOMC meeting
In the statement issued after its March meeting, the FOMC noted that economic growth had rebounded strongly in the first quarter but appeared likely to moderate to a more sustainable pace. It further noted that a number of factors have contributed to the stability in core inflation. However, the Committee also viewed the possibility that core inflation might rise as a risk to the achievement of its mandated objectives, and it judged that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In my view, data arriving since the meeting have not materially changed that assessment of the risks. To support continued healthy growth of the economy, vigilance in regard to inflation is essential.
In my view, there is a substantial chance the Fed will pause at its June meeting to let the tightening already in the system catch up giving the Fed time to asses whether further hikes are warranted. Here's the WSJ report:
Bernanke Warns Rate Pause Doesn't Mean End of Tightening, by Brian Blackstone, WSJ: U.S. economic growth should moderate to a more sustainable pace later this year but high energy prices remain a risk to both inflation and economic activity, Federal Reserve Chairman Ben Bernanke said Thursday. ... Mr. Bernanke also appeared to prep markets for an eventual pause in the Fed's nearly two-year tightening cycle, signaling that any such pause doesn't necessarily mean an end to rate moves.
"At some point in the future the committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook," he said.
"Of course, a decision to take no action at a particular meeting does not preclude actions at subsequent meetings, and the committee will not hesitate to act" if necessary, he added. ...
Mr. Bernanke said Thursday that economic data since the Fed's last meeting "have not materially changed [the Fed's] assessment of the risks' that it expressed in the FOMC statement. ...
Mr. Bernanke highlighted two unknowns -- housing and energy prices -- that could affect the economic outlook. Energy prices "remain a concern," he told the Joint Economic Committee, and while the inflation outlook is "reasonably favorable," it "carries some risks." He noted that high energy prices pose risks to both economic growth and inflation. ... Mr. Bernanke made clear that the Fed will continue to closely watch "core" inflation -- which excludes food and energy prices -- for signs about where inflation is heading.
Housing barometers suggest that "this sector will most likely experience a gradual cooling rather than a sharp slowdown," he said. However, "the risk exists that a slowdown more pronounced than we currently expect could prove a drag on growth this year and next," he added. ...
Posted by Mark Thoma on Thursday, April 27, 2006 at 09:56 AM in Economics, Fed Speeches, Monetary Policy |
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