Moderate Growth and Subdued Inflation

Fed Chairman Bernanke testified in front of the Joint Economic Committee of Congress and said that he sees moderate growth and subdued inflation. Bernanke cited the fast paced growth of US Gross Domestic Product during the fourth quarter. Bernanke said the growth was a result of a realignment of inventories and credited stimulus programs also. Bernanke stated that, “growth in private final demand will be sufficient to promote a moderate economic recovery.” And said there were “significant restraints” and expressed concern that 44% of the unemployed have been jobless for more than six months. Bernanke said inflation was ‘subdued’ and told lawmakers that “the moderation in inflation has been broadly based, affecting most categories of goods and services.”

Rates to Remain Low

Regarding rate hikes Bernanke did not address the issue in his testimony but addressed the issue during the question and answer period. In response to questions about rate hikes Bernanke said, “The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period.” Bernanke qualified his statements by saying that the Fed’s commitment to low rates is based on certain economic conditions such as underused productive capacity, high unemployment and limited inflation expectations. Bernanke added, “If those conditions cease to hold and we anticipate changes in the outlook then of course we will respond to that.”

Bernanke Expresses Caution

Bernanke warned that the risk of economic contraction is “not negligible” and that growth has been slowed by weakness in the construction industry and massive state and city budget problems. Bernanke cited signs that layoffs are slowing and said employment “has turned up.” Analysts say that Bernanke’s comments showed caution about economic recovery. Jeffrey Friedman, of Lind-Waldock in Chicago stated, “It implies he won’t be tinkering with short-term interest rates in the near future.” Lawmakers asked questions about China’s currency policies which has become a Washington talking point in advance of next week’s G 20 meeting. Bernanke was asked if the Chinese Yuan, which many experts consider undervalued, was a factor in causing the global recession. Bernanke said it was just one of many factors causing the recession. Bernanke said, “I think it would be good for the Chinese to allow more flexibility in their exchange rate. It would give them more autonomy in their monetary policy so they could address inflation and bubbles within their own economy.”