United States: Ben Bernanke's Semi-Annual Monetary Policy Report To The Congress Highlights

The whole Testimony is here.  Below are the highlights.

On Recent economic situation, Ben Bernanke said:

More recently, however, we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. Notably, real consumer spending has grown at a solid pace since last fall, and business investment in new equipment and software has continued to expand. Stronger demand, both domestic and foreign, has supported steady gains in U.S. manufacturing output.

On Job Market:

While indicators of spending and production have been encouraging on balance, the job market has improved only slowly.

On Housing Market:

Likewise, the housing sector remains exceptionally weak. The overhang of vacant and foreclosed houses is still weighing heavily on prices of new and existing homes, and sales and construction of new single-family homes remain depressed… many potential homebuyers are still finding mortgages difficult to obtain and remain concerned about possible further declines in home values.

On Inflation:

Inflation has declined, on balance, since the onset of the financial crisis, reflecting high levels of resource slack and stable longer-term inflation expectations…

The rate of pass-through from commodity price increases to broad indexes of U.S. consumer prices has been quite low in recent decades, partly reflecting the relatively small weight of materials inputs in total production costs as well as the stability of longer-term inflation expectations. Currently, the cost pressures from higher commodity prices are also being offset by the stability in unit labour costs. Thus, the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation–an outlook consistent with the projections of both FOMC participants and most private forecasters.

On Quantitative Easing:

A wide range of market indicators supports the view that the Federal Reserve’s recent actions have been effective.

On Exit Strategy:

… depository institutions hold a very high level of reserve balances with the Federal Reserve. Even if bank reserves remain high, however, our ability to pay interest on reserve balances will allow us to put upward pressure on short-term market interest rates and thus to tighten monetary policy when required. Moreover, we have developed and tested additional tools that will allow us to drain or immobilize bank reserves to the extent needed to tighten the relationship between the interest rate paid on reserves and other short-term interest rates. If necessary, the Federal Reserve can also drain reserves by ceasing the reinvestment of principal payments on the securities it holds or by selling some of those securities in the open market. The FOMC remains unwaveringly committed to price stability…

My Take

I believe there are nothing particularly special here.  Economic growth seemed to be strong, but job market and housing market is still bad.  While he talks about exit strategy, it looks like interest rates are still going to be low for “extended period”.

Q&A underway, you can watch here.

This article originally appeared here: United States: Ben Bernanke’s Semi-annual Monetary Policy Report to the Congress Highlights
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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