Is Ben Bernanke the new Mary Poppins?His "spoonful of sugar" of choice is slashing 225 basis points from the federal funds rate since September. Today, he told the U.S. Congress that more rate cuts will probably be coming.
"In part as the result of the developments in financial markets, the outlook for the economy has worsened in recent months, and the downside risks to growth have increased," he said in his prepared testimony. "To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so."
He goes on to mention that demand for housing is weak because of the "the virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgages" while the labor market has suffered as the gains in service sector employment slowed and construction and manufacturing jobs fell.
Bernanke also said:
To date, inflation expectations appear to have remained reasonably well anchored, but any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank's policy flexibility to counter shortfalls in growth in the future. Accordingly, in the months ahead we will be closely monitoring inflation expectations and the inflation situation more generally.Bloomberg News notes a change in tone in Bernanke's rhetoric, noting that "he left out the line from Jan. 10 and Jan. 17 speeches that the Fed stood ready to take 'substantive additional action.' The chairman also omitted comments that policy makers 'must remain exceptionally alert and flexible' and act in a 'decisive' manner." JPMorgan economist Mark Feroli told the news service that Bernanke may be bracing investors for the Fed "at least slowing the pace of accommodation."
In that case, Wall Street might want to take down two spoonfuls of sugar to help the medicine of a slowing economy go down. By the way, check out the video below for a hysterical explanation of the subprime mortgage meltdown.
Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.
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Reader Comments (Page 1 of 1)
2-14-2008 @ 3:58PM
virginia said...
does anyone out there finance repoed mobile homes and land packages. i found one i want to buy in great shape with 3.5 acres but no one will finance. it is permanately underpinned but my son would be living in it as a college living area/ first home. they will not finace to me without it being my permanate home and he does not qualify. i only need a 20,000 loan for 5 years.
2-14-2008 @ 7:32PM
james gooch said...
There only seems to be repetitive rhetoric from inexperienced people like bernanke.Everybody already knows the problems,why does`nt some harvard educated politician offer some positive suggestions as to how to correct the problem.People in this market today panic at the slightest hint of bad press.grow-up,hold firm in your financial beliefs and show the press and the government that steady wins the race.