Diane Swonk, Chief Economist
Feb. 24, 2010 – 9:45 a.m. CT
Ben Speaks, Congress Postures
Speaking to Congress today, Fed Chairman Ben Bernanke underscored the Fed's view that the recovery remains precarious, and as such, the Fed will do all that is necessary to continue to support the recovery, including keeping rates low (near zero) for an "extended period of time."
Separately, the Fed reiterated that it will continue removing emergency measures that it enacted during the height of the crisis, and will be able to exit those strategies on a timely basis. For the moment, however, disinflation remains more of a concern than accelerating inflation.
The monkeys on Capitol Hill postured to make Ben a scapegoat in the financial crisis. The reality is that the situation would be MUCH, MUCH worse had the Fed not been so proactive in stemming the damages caused by the crisis. Until we start rewarding our elected officials for averting problems, however, we are not likely to hear much intelligence from Capitol Hill.
Separately, new homes declined in December, along with prices. A gap in the window of the first-time buyer tax credit is the primary reason, as many buyers purchased homes before the tax credit was extended. That said, the decline is not reassuring as it seems to confirm that government stimulus is necessary to support housing.
The Bottom Line: Bernanke's somewhat dovish comments, combined with today's weak economic data, warnings about the unevenness of the recovery by past Fed Chairman Alan Greenspan, a contraction in bank credit as well as a drop in consumer confidence in February, suggest that the economy slowed at the start of 2010, and the recovery remains extremely fragile.
Moreover, losses incurred during winter storms that shuttered businesses along the Eastern seaboard have yet to show up in the data. Employment is expected to remain particularly weak during the month of February. Those losses will be recouped in March. However, the hit to the pay of hourly workers was no doubt at least part of the reason why consumer confidence fell precipitously for the month. We are still skating on far-too-thin ice for the large number of workers living paycheck to paycheck. Indeed, the winter storms, as bad as they were, would have been little more than a blip on the radar screen if this recovery were anything like those from the severe recessions of the past.
© 2010 Mesirow Financial Holdings, Inc. ("Mesirow Financial"). All rights reserved.
The information in Diane Swonk's Fed Flash is the proprietary and copyrighted material (the "Copyrighted Material") of Mesirow Financial. The Copyrighted Material, or any portion thereof, may not be reproduced, retransmitted or submitted to any media outlet, or posted on any Web site aside from mesirowfinancial.com without the express written consent of Mesirow Financial. This information provided here in is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic or other decisions. The views expressed herein are those of the author and may not necessarily represent the views of Mesirow Financial, its operating businesses or other of its employees. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.
