Best of Bernanke’s Semi-Annual Testimony on the Hill

Posted by Diane Swonk on July 17, 2012

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.

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