Thursday, January 10, 2008

The Chairman Speaks


Today, in an address given in Washington, D.C., Ben Bernanke, the Federal Reserve’s Chairman, acknowledged that the economy has deteriorated even as credit-market conditions have – in his view - improved somewhat. You can peruse the full text at

Here are excerpts of Mr. Bernanke’s key remarks.

“Recently, however, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced. …. On the whole, despite improvements in some areas, the financial situation remains fragile, and many funding markets remain impaired.

“A second consequential risk to the growth outlook concerns the performance of the labor market. ….

“Even as the outlook for real activity has weakened, there have been some important developments on the inflation front. Most notably, the same increase in oil prices that may be a negative influence on growth is also lifting overall consumer prices and probably putting some upward pressure on core inflation measures as well. …. Accordingly, in the months ahead we will be closely monitoring the inflation situation, particularly as regards inflation expectations.

“Monetary policy has responded proactively to evolving conditions. …. The Federal Reserve took these actions to help offset the restraint imposed by the tightening of credit conditions and the weakening of the housing market. However, in light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary. … Based on that evaluation, and consistent with our dual mandate, we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”

The Chairman remains concerned about inflation, but his focus has increasingly shifted toward the recession that some – perhaps including Mr. Bernanke - believe is now unfolding.

© 2008 Michael B. Lehmann

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