He didn’t try to sugarcoat it, but Federal Reserve Chairman Ben Bernanke did say the U.S. economy was not destined for the Armageddon scenario some in the media have been prognosticating.
Bernanke wasn’t completely down on the economy – specifically he doesn’t foresee a recession, despite the media’s clamor that the economy is going into or is already in a recession [1]. He praised the U.S. economy for its ability to shake off rough times.
“I think over the longer term, that the economy will perform quite well,” Bernanke said. “I think we have challengers as well. Obviously we need to address some of these fiscal issues. We need to address our education system. There are issues about health care. Those are all very important, but the U.S. economy, for the last century, has shown its tremendous resilience and its ability to grow, despite all its challenges.”
Bernanke testified before the House Budget Committee on January 17 about the prospects of the government’s enacting an economic stimulus plan that could help the U.S. economy through a slowdown.
“I agree that fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone,” Bernanke said. “But the design and implementation of the fiscal program are critically important. A fiscal initiative at this juncture could prove quite counterproductive, if it provided economic stimulus at the wrong time or compromised fiscal discipline in the longer term.”
Bernanke was cautious not to suggest everything will be fine.
“I think we have some short-term issues associated with the dynamics of our housing market and some of these issues in financial markets and we’re looking at a slowdown,” Bernanke said, responding to a question about the perception of the economy from Rep. Daniel E. Lungren, (R.-Calif.). “But, over longer periods of time, the U.S. economy has shown remarkable and consistent growth particularly in the last decade or so. Productivity growth has been outstripping other industrial countries quite consistently.”
With any rate cuts by the Fed, the threat of inflation crops up – specifically causing a spike in commodity prices, like gold and oil, which are valued on the global market in U.S. dollars. Bernanke told Budget Committee members the Board of Fed Governors are monitoring inflationary threats.
“Thus far, the public’s expectations of future inflation appear to have remained reasonably well anchored and pressures on resource utilization have diminished a bit,” Bernanke said. “Further, futures markets suggest that food and energy prices will decelerate over the coming year. Given these factors, overall and core inflation should moderate this year and next, so long as the public’s confidence in the Federal Reserve’s commitment to price stability is unshaken.”