[/caption]Before the recession, politicians and the financial market listened to the Federal Reserve Chairman with much interest, and it is even more so now that we are in an economic crisis. So when current Fed Chairman Bernanke testified yesterday on Capitol Hill, the markets and the politicians were listening to every nugget of information Bernanke had to impart.
The New York Times is reporting that politicians and the financial pundits came away disappointed, because Bernanke said that the Federal Reserve Board had no intention of providing immediate support to assist the struggling economy.
Bernanke went on to say that the economy was recovering at a modest pace and that he would be ready to provide assistance if the economy showed sign of a double dip recession.
He also saw through his economic vistas that there wasn’t going to be a great improvement in the employment outlook for the rest of President Obama’s tenure – specifically opining that the unemployment rate would remain above 7%.
This piece of information spooked everyone, especially in a year of the mid-term elections for the incumbents. One doesn’t have to be clairvoyant to know that there is an anti-incumbent mood out there, and that the number one issue that has the attention of the voting public is the ongoing high unemployment. All this negative data coming from Chairman Bernanke contributed to the market triple digit drop.
Bernanke’s remarks, during the semiannual monetary report to Congress, were replete with economic nuggets: he intended to keep short term interest rates low and that, “it would take a significant amount of time” to restore the 8.5 million jobs; and that the economic outlook remained unusually uncertain.”
He also gave credence to the fact that the markets are intertwined by imparting that the European debt crisis was not conducive to economic growth here. Among the bullets in the Feds arsenal to combat further erosion in the economy is that the Fed could again expand the size of its balance sheet, now tabulated at $2.3 trillion, by buying additional Treasury debts or mortgage-backed securities, or even other classes of assets, such as municipal bonds.
Mr. Bernanke gave props to the new financial legislation signed earlier by Presidential Obama, but refused to be drawn into the debate over stimulus spending and tax cuts.
He basically gave the, “on the one hand,” “but on the other hand,” answer… as are the wont of economists. If the market remains shaky for sustained sessions, we will no why. I have the feeling if the Fed Chairman is correct, we will be seeing the protracted fight between Republicans and Democrats over the issue of whether to extend unemployment benefits again and again - not Good!
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