by William Neikirk
A key Federal Reserve official today played down recent sharp increases in inflation and suggested the economy should get stronger after the middle of the year. Everyone loves optimism, especially from such a source.
Donald Kohn, the central bank's vice chairman who often speaks for Chairman Benjamin Bernanke, said the Fed will "do what is needed" to bring about price stability and economic growth.
Indirectly, he indicated that the Federal Reserve does not believe that the economy is headed for a period of "stagflation," or economic stagnation combined with sharp inflation like that which prevailed in the 1970s.
Bernanke will testify before Congress Wednesday and Thursday, and is expected to follow themes that Kohn laid out today in a speech at the University of North Carolina at Wilmington.
A dramatic slowing of the economy, along with big increases in the consumer price index and the producer price index, raised concerns about a return to stagflation. The producer price index rose 1 percent last month, the government said today, but Kohn didn't indicate much worry.
"I believe we will see a return to stronger growth, lower unemployment, lower inflation and improved flows in financial markets, but it probably will take a little while," Kohn said. He didn't define "little while," but suggested an improvement in economic performance in the second half of the year.
He made these points:
--The economic stimulus program passed by Congress will boost consumer spending.
--The decline in residential investment should abate "later this year as the overhang of unsold homes is worked off, reducing what has been a significant drag on the economy over the past two years."
--Interest rate declines that began last summer should increase economic activity over coming quarters. Prospects for foreign economic growth "remain favorable," he said, meaning U.S. exports would still boost economic growth here.
--Inflation will "edge lower over the next few years." He said energy and other commodity prices will level out. Greater slack in the economy will reduce pressure on wages and prices.
But Kohn cited some risks. Further declines in house prices could cut deeply into household wealth and intensify the problems in mortgage markets, he said. And, "financial markets could remain quite fragile." And inflation could turn to be nastier than the Fed currently believes.
Currently, he said, economic activity remains "quite sluggish," a phrase that may seem understated considering rising unemployment and prices that are affecting America at this juncture.
Expect Bernanke to put a good face on the economy when he testifies on Wednesday.
(AP Photo/Mark Lennihan, File)
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Comments
"Fed spokesman: Economy should gain steam soon"
Fed translation: "Don't look behind the curtain people, the economy is going to be just fine we swear, we just asked Dick Cheney and he told us so".
Posted by: John E | February 26, 2008 3:57 PM
Do you believe this nitwit, or your own lyin' eyes? Does anyone really think the mortgage mess is going to get better? Sorry, I've moved to a 40% cash position and I think I'm still not liquid enough.
Posted by: weinerdog43 | February 26, 2008 4:31 PM
Regaining steam? What's this guy talking about?
John D says the economy is just great! That's the only economic indicator I need.
Posted by: Luke | February 26, 2008 4:46 PM
"Fed spokesman: Economy should gain steam soon"
Fed translation: "Don't look behind the curtain people, the economy is going to be just fine we swear, we just asked Dick Cheney and he told us so".
Posted by: John E | February 26, 2008 3:57 PM
--------------------------------------------------------------------------------
Do you believe this nitwit, or your own lyin' eyes? Does anyone really think the mortgage mess is going to get better? Sorry, I've moved to a 40% cash position and I think I'm still not liquid enough.
Posted by: weinerdog43 | February 26, 2008 4:31 PM
Just for fun- can either of you share any one person whose opinion you do respect?
Seriously-you two are so predictable... when the news is good, the person with the message is a "niwit" , when the news is bad, well that was what you were saying for years...
Just one person..thats all.
Posted by: heartburn | February 26, 2008 5:00 PM
The Federal Reserve Bank bears primary responsibility for causing the Great Depression. It is now engaged in many of the same practices that caused the Great Depression. I wouldn't buy a used car from the guy, much less take his advise on the economy.
Posted by: John W. | February 26, 2008 5:00 PM
I may be a sucker, but I tend to agree.
No thanks to the Bush administrations so called leadership!!!
Obama 2008
Posted by: Logic Prisoner | February 26, 2008 5:01 PM
Trillions of dollars in debt, endless deficits, and the economy will soon regain steam?? Really?
If Republicans love the Bush/McCain war so much, why don't they get the government to start selling war bonds to pay for it? Then all Republicans can buy them, support their war, and help this endless Republican debt.
Posted by: Paul | February 26, 2008 5:09 PM
Seriously-you two are so predictable... when the news is good, the person with the message is a "niwit" , when the news is bad, well that was what you were saying for years...
Just one person..thats all.
Posted by: heartburn | February 26, 2008 5:00 PM
heartburn translation:
Waaaaaaaaaaaaaaah!
Waaaaaaaaaaaaaaaaaaaaaaah!!
Waaaaaaaaaaaaaaaaaaaaaaaaah!!!
Mommy, I need an ant-acid, my HEART is BURNING!!
Posted by: John E | February 26, 2008 5:33 PM
John E....Is it possible for you to stay focused on the topic being discussed? What in the world does this story have to do with Dick Cheney? If you pathetic liberal/socialists cannot achieve financial success in a "free market capitalist society"...then please, spend what savings you have on a one way ticket to Europe. The people who work hard in this country are tired of listening to you whine!!!! Just shut up and get a decent paying job so the rest of us don't have to pay for lazy rear-end!!!
Posted by: Anonymous | February 26, 2008 5:40 PM
"Fed spokesman: Economy should gain steam soon"
Oh sure. And monkeys may fly out of John D's.... never mind.
Posted by: TheReamer | February 26, 2008 6:07 PM
Weiner - don't tell me you invest the other 60% in the capitalistic stock market? Even when a Republican is President?
Don't let the other members of the tinfoil hat club hear about this.
Posted by: Terry | February 26, 2008 7:18 PM
"can either of you share any one person whose opinion you do respect?"
Sure: Paul Volcker, John Maynard Keynes, John Kenneth Galbraith, Brad DeLong, Ludwig von Mises for starters.
How's that?
Posted by: weinerdog43 | February 26, 2008 7:23 PM
And now we are supposed to bail out the economy with a $grand borrowed from ourselves before the last round of juice is even paid off.
Save it for a new muffler.
Posted by: C.Morris | February 26, 2008 7:47 PM
"The Federal Reserve Bank bears primary responsibility for causing the Great Depression. It is now engaged in many of the same practices that caused the Great Depression. I wouldn't buy a used car from the guy, much less take his advise on the economy.
Posted by: John W. | February 26, 2008 5:00 PM"
JW,
There are times I really really agree with you. This is one of those moments.
Posted by: C.Morris | February 26, 2008 7:54 PM
My last post hasn't shown up yet, but I should probably elaborate:
Paul Volcker because he was able to get a handle on runaway inflation.
John Maynard Keynes because, well, we're all Keynesians now.
John Kenneth Galbraith for explaining Keynesian economics so that even I understand them (sort of).
Brad DeLong for pointing out why Alan Greenspan is so dishonest.
And Ludwig von Mises for being even more difficult than Keynes.
These people I respect. I may not agree w/von Mises, but I respect his theories. Greenspan, Bernake and Kohn are simply liars.
Heartburn, dude, if you are really bullish on the economy, great. Foolish, but good for you. Your consumption keeps the economy 'humming'.
Posted by: weinerdog43 | February 26, 2008 7:58 PM
Anonymous,
You are a the consummate idiot. People in Europe work hard and succeed every day, dimwit.
You must remember, Butterfly, Dick Janey is the one that said deficits don't matter. Bush said; 'We hit the trifecta'.
Once again, just to be clear, you are a stupid fool. Keep sucking the nitrous oxide.
Also, most Euro countries are net creditors. We, on the other hand, thanks to Der Furor, and Reich Furor Cheney, are the Milky Way's largest debtor nation.
Posted by: C.Morris | February 26, 2008 8:02 PM
Paul,
War Bonds.
Excellent idea.
Even LBJ issued a surtax to pay for Nam.
But this all smacks of actual sacrifice to pay for the titanic costs involved. More than just going to the mall, or Disney World. It might scare America too much.
Posted by: C.Morris | February 26, 2008 8:13 PM
Interest rates near all time lows...unemployment near all time lows... and you Lib's still whine and cry! What a bunch of lazy, low life scum! Perhaps if you bothered educating yourself about investing you would be in better financial shape!! But since you didn't bother, now the successful people in this country have to pay for your "dimwit" self's. I'll take four more years of Bush/Cheney over a lifetime of socialism anytime!!! God bless CAPITALISM!!! It worked for me.!!
Posted by: Anonymous | February 26, 2008 8:42 PM
This just in;
Inflation in January; 1%
Posted by: C.Morris | February 26, 2008 8:59 PM
Anonymous,
You are nobody. Invisible. A ghost screaming into a flushing toilet. Less than zero.
You are, in short; Anonymous. A coward. A twit. A twaddler. No name. Nothing. Nowhere Man. Or woman. Or vapor.
Posted by: C.Morris | February 26, 2008 9:02 PM
God bless CAPITALISM!!! It worked for me.!!
Posted by: Anonymous | February 26, 2008 8:42 PM
Nice "post name" loser..
Swampers, this guy is pretty much talking to himself, it's typical behavior for Republicans, they are commonly known to beat their heads against a wall repeatedly and then wonder why their heads hurt.....and lastly, they'll blame it on Bill Clinton.
GOD BLESS REPUBLISCUM style Capitalism... especially if you're a doughy rich white guy Republican:
http://photobucket.com/mediadetail/?media=http%3A%2F%2Fi28.photobucket.com%2Falbums%2Fc241%2Ftsamshara%2Falbum4%2F657e.jpg&searchTerm=deficit&pageOffset=12
Posted by: John E | February 26, 2008 9:06 PM
I encourage people to visit calculatedrisk.blogspot.com if you want to read about what is really going on. See also Nourial Roubini. Finally, pick up the book by William Grieder called 'Secrets of the Temple' which offers wonderful insights into the operation of the Fed.
Posted by: weinerdog43 | February 26, 2008 10:09 PM
Heartburn, dude, if you are really bullish on the economy, great. Foolish, but good for you. Your consumption keeps the economy 'humming'.
Posted by: weinerdog43 | February 26, 2008 7:58 PM
Not bullish, I would say more critical or guardedly optimistic. I respect that you cite respected economists as an opinion you would trust...(unlike John E's impersonation of a monkey throwing whatever is available from it's cage!). Having said this, I think you would agree that any macro economist would say that business cycles are , to be redundant, cyclical- and by default the econmony should gain steam.
To be clear -I disagree with just about everything this admin and both sides of the aisle have done economically (other than the Bush tax cuts).
The biggest risk I see in the near future-and I believe equities markets ( and you with your 40% cash position) are sharing this fear- that the job creators and wealth builders in this country are looking at a huge tax increase next year with the election of either of the DEM candidates..
Posted by: heartburn | February 27, 2008 10:05 AM
heartburn, thanks for coming back.
I disagree w/your argument about taxes. Deficits DO matter. You either have tax increases or reductions in spending. This Iraqi farce has been paid for via credit card and now the bill is due. I would assert that regardless of who is in charge, we will be incurring a great deal of financial pain in the future because of this current administration's past fiscal mismanagement.
Have a good one.
Posted by: weinerdog43 | February 27, 2008 11:06 AM