by William Neikirk
There are two economic beasts staring down Federal Reserve Chairman Ben Bernanke and, by extension, the economy: A debilitating recession and destructive inflation.
Backed into a corner from the spreading effects of a housing-triggered credit crunch, Bernanke shrugged off inflation fears today and signaled the central bank will focus its attention on preventing a steep economic downturn.
In testimony before the House Financial Services Committee, the embattled Fed chairman signaled another interest rate reduction is coming in March, perhaps as high as one half of a percentage point, as he continued to try to get ahead of the curve on a financial market squeeze that he was late in anticipating.
"The economic situation has become distinctly less favorable" since last summer, he said. "The housing market is expected to continue to weigh on economic activity in coming quarters."
Bernanke said a surge in oil prices and food prices is worrisome, but shed his inflation-fighting rhetoric for the moment to the economic weaknesses now staring him in the face. He even urged Congress to come up with far-reaching alternatives to deal with the economic fallout from the housing sector, including direct and costly measures by the government.
Widely accused of waiting too late to attack the growing credit problems that began to strangle economic growth last fall, Bernanke indicated that he's gotten the message. He spoke of a sluggish economy, falling house prices that could impact consumer spending, and financial markets that "continue to be under considerable stress."
He made it clear that he is trying to balance the risks now confronting the economy, which many analysts say is already in a recession. And he made clear that he wants to avoid a widespread crisis of confidence that would be harder to contain.
"You fight the enemy in front of you, not the one over the hill," said David Wyss, chief economist at Standard & Poor's. "Right now, the danger is recession, and inflation is just over the hill...My general feeling is the Fed is worried about a meltdown in financial markets."
Diane Swonk, chief economist at Mesirow Financial in Chicago, added, "The Fed is in full risk-management mode," and added that Bernanke "has all the weight on his shoulders" and is showing his discomfort in trying to manage the situation.
"He's playing catch-up," said Joel Naroff, an economic consultant in Holland, Pa., saying that Bernanke was too slow to act when the credit crunch began to hit the economy last summer. The former college professor also had to back away from his support for near-automatic Fed tightening of monetary policy when inflation began to rise above established targets.
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Comments
Yeah,
They've been right about everything, so far--temporary "froth" in the housing market, etc.
http://www.informationclearinghouse.info/article15689.htm
Posted by: dt | February 27, 2008 5:29 PM
"There are two economic beasts staring down Federal Reserve Chairman Ben Bernanke and, by extension, the economy: a debilitating recession and destructive inflation."
Actually, there's a third beast staring down Bernanke: overhyped, partisan negative reporting on the economy by hyperpartisan economic reporters.
Posted by: Hayek | February 27, 2008 5:53 PM
"BERNAKE SPEAKS"
No Immunity, no deflation. No immunity no stimulus. No Immunity a more feared "HOSTAGE RECESSION" from my boss George Dick Cheney Bush.
So NO IMMUNITY, NO DOLLAR, NO IMMUNITY 4.50 FOR A GALLON OF GAS. NO IMMUNITY, NO FOOD, NO BEEF.
NO IMMUNITY AMERICA MEANS NO NEW JOBS, NO NEW DIPLOMACY AROUND THE WORLD.
NO IMMUNITY FROM PROSECUTION FOR MY TELECOMMUNICATIONS FRIENDS, MORE "HOSTAGE RECESSION"
NO IMMUNITY THERE IS NOT ONE GENERAL THAT CAN STAND BEFORE CONGRESS TO MAKE ME LISTEN.
"WE REFUSE TO GO TO JAIL"
OR BE PROSECUTED BY THE PEOPLE'S GOVERNMENT, NO MATTER HOW BROKE YOU GET!
IMMUNITY.....OR.......PAIN AT THE PUMP!
Posted by: Roger Morris | February 27, 2008 6:09 PM
"Fed chairman shrugs off inflation fears"
That's not very comforting!
Posted by: Logic Prisoner | February 27, 2008 6:23 PM
'Nothing to worry about folks. Keep moving along. Everything is under control. The authorities have it well in hand. No harm will come to the oligarchy. Sleep well....
Posted by: C.Morris | February 27, 2008 6:36 PM
Actually, there's a third beast staring down Bernanke: overhyped, partisan negative reporting on the economy by hyperpartisan economic reporters.
__________________________
"The economic situation has become distinctly less favorable" since last summer, he said. "The housing market is expected to continue to weigh on economic activity in coming quarters."
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So when reporters put actual quotes from people hand picked by the current resident to represent his mis-administration in the news, that's "hyper-partisanship"? In other words, if it reflects what you want to believe, its "fair and balanced". If it does not reflect that, it is hyper-partisan? You guys can continue to shoot the messenger all you want. As they say, you are entitled to your own set of opinions, not your own set of facts. The current resident has destroyed our economy (much the way he destroyed the economy of all the companies his daddy gave him to run) and our country. If you don't like that, tough eggs. You can't hide from the truth, you can't hide the truth, you can't change the truth, and you can't handle the truth. Go back and stick your head in the sand. We're all better off that way.
Posted by: rncbs | February 27, 2008 8:30 PM
"Actually, there's a third beast staring down Bernanke: overhyped, partisan negative reporting on the economy by hyperpartisan economic reporters."
Posted by: Hayek | February 27, 2008 5:53 PM
Stagflation
An economic condition marked by a continuing inflation together with a decline in business activity and an increase in unemployment.
It's BACK.
Posted by: Logic Prisoner | February 27, 2008 9:13 PM
Well, if you don't take into account the inflating cost of utilities, food, health care, tuition, raw materials, transportation, etc.., you won't find anything wrong.
This Bush team just can't stop hitting them out of the park.
Posted by: RomanB | February 28, 2008 12:50 AM
Logic Pris,
They are really playing with fire now. In the 70's stagflation fight it was learned it's much easier to rev up the economy that to dampen inflation once it's settled in.
Beyond that, look at their usual prescription; Borrow even more cheap money, spend it as fast as you can. The American economy has become a heroin addict. 'Just one more hit! Then I'll quit.'
Posted by: C.Morris | February 28, 2008 9:57 AM
P.S.
Re. Heroin addict economy;
'....and cut my taxes more!'
Note that this prescription guarantees upward spiraling public and private debt.
Posted by: C.Morris | February 28, 2008 10:43 AM