From the Chairman

The Lehmann Letter ©

Here are some excerpts from today’s speech by Federal Reserve Chairman Ben Bernanke to the Economic Club of New York.

“I expect moderate economic growth to continue next year. Final demand shows signs of strengthening… the beneficial influence of the inventory cycle on production should continue for somewhat longer. …residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years. Prospects for nonresidential construction are poor, however, given weak fundamentals and tight financing conditions.

“In the business sector…enhanced business confidence…should lead to a pickup in business spending on equipment and software, which has already shown signs of stabilizing.

“ … Banks' reluctance to lend will limit the ability of some businesses to expand and hire. I expect this situation to normalize gradually … Jobs are likely to remain scarce for some time, keeping households cautious about spending…as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect.

“…On net, notwithstanding significant crosscurrents, inflation seems likely to remain subdued for some time.

“The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period….”

How would you interpret these remarks? V-shaped or U-shaped recovery? I go for the latter.

© 2009 Michael B. Lehmann