Asha Bangalore of Northern Trust points out that Ben Bernanke’s rosy read on the economy on June 25th now makes him look like a Bush Administration pawn. Asha argues that Ben’s challenge in his testimony today is to restore his credibility before it’s too late:
The FOMC statement of June 25 showed a subtle shift in emphasis to inflation from growth:
“Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.”
Incoming economic data and financial market turmoil suggest that this shift in emphasis needs to
be revised. The jobless rate has risen from a low of 4.4% in the fourth quarter of 2006 to 5.3% in
the second quarter of 2008. The residential sector remains mired in a recession. Consumer
spending is soft and partly supported by tax rebates. The four economic variables the National
Bureau Economic Research uses to date the onset and end of a recession have registered peaks. In
other words, an unofficial recession is in place.
Of course, even as the economy has once again crumbled, the “upside risks to inflation and inflation expectations” have continued to increase. So Ben really does find himself in a bind.