I was tweeting (@DianeSwonk) this morning during Federal Reserve Chairman Ben Bernanke’s testimony and questions from the Senate Banking Committee. Here are a few of my thoughts and reactions:
- Fed downgrades growth, with concerns about unemployment, which justifies further Fed action.
- One bright spot is housing (home builder sentiment jumped) but it is not enough to stem a weakening in growth.
- Additional easing is on the table; the Fed could move as soon the July 31/Aug 1 meeting.
- Forecast for additional weakness is enough to justify easing, but that easing could be piecemeal, given the variety of headwinds.
- Fiscal cliff triggers mild recession; that is probably an underestimate of what could happen, given the domino effects of bad policy.
- Bernanke is at least as, if not more, concerned about slowdown now than a year ago.
- Giving housing a lift as it recovers may be one of more effective strategies.
- Bernanke underscores that Fed still has more tools: balance sheet size and communications are key levers.
- Look for first move to be communication, which is extending out the late 2014 start on tightening.
- Communication is the easiest way to expand policy without coordinated move.
- Problem with communication is credibility & sustainability of policy decision if still necessary after Bernanke leaves as Fed chairman.
- Ben underscores that Fed use of QE is not unique; other central banks have engaged in same or more quantitative easing (Bank of England, European Central Bank).
Stay tuned. The House Financial Services Committee has invited Chairman Bernanke tomorrow for the same testiomony but could be very different tone in questions.