Another Bernanke Testimony
Bernanke testified before another Congressional committee today. Here is a summary of his comments (from Briefing.com):
- The recent near-term indicators show little sign of improvement. Businesses shed 600k jobs in January, about the same pace of job loss as in November and December, and the unemployment rate jumped to 7.6%. Moreover, the number of claims for unemployment insurance has moved higher since mid-January, suggesting that labor market conditions may have worsened further in recent weeks.
- In reaction to the deteriorating job market, the sizable losses of equity and housing wealth, and the tightening of credit conditions, households have continued to rein in their spending. Home sales and new construction have continued to decline despite lower mortgage rates, reflecting the uncertain economic environment and the expectation of many potential buyers that home prices have further to fall. The manufacturing sector has also deteriorated further so far this year. Manufacturing output fell sharply again in January, bringing the rate of capacity utilization to its lowest level in the post-World War II period.
- Although the near-term outlook for the economy is weak, over time, a number of factors should promote the return of solid gains in economic activity in the context of low and stable inflation. The effectiveness of the policy actions taken by the Federal Reserve, the Treasury, and other government entities in restoring a reasonable degree of financial stability will be critical determinants of the timing and strength of the recovery.
- If financial conditions improve, the economy will be increasingly supported by fiscal and monetary stimulus, the beneficial effects of the steep decline in energy prices since last summer, and the better alignment of business inventories and final sales, as well as the increased availability of credit.
- As you are well aware, the Congress recently passed a major fiscal package, which is aimed at strengthening near-term economic activity. The goal of the fiscal package is not just to provide a one-time boost to the economy, but to lay the groundwork for a self-sustaining, broad-based recovery. Historical experience strongly suggests that without a reasonable degree of financial stability, a sustainable recovery will not occur.
- Although progress has been made on the financial front since last fall, more needs to be done. As you know, in response to ongoing concerns about the health of financial institutions, the Treasury recently announced plans for further steps to ensure the strength and soundness of the financial system and to promote a more smooth flow of credit to households and businesses.
- The plan would use the remaining resources appropriated to the Treasury under the Emergency Economic Stabilization Act--~$350 bln--and also involve additional spending to support the activities of Fannie Mae and Freddie Mac. Whether further funds will be needed depends on the results of the current supervisory assessment of banks, the evolution of the economy, and other factors. The Administration has included a placeholder in its budget for more funding for financial stabilization, should it be necessary.