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Bernanke gloomy on economic outlook

ben bernanke©AP

Ben Bernanke offered a gloomy outlook for the US economy but the Federal Reserve chairman offered no hint of further monetary easing in testimony to Congress.

“We are looking very carefully at the economy, trying to judge whether or not the loss of momentum we’ve seen recently is enduring, and whether or not the economy is likely to continue to make progress,” he said, warning that progress in reducing a 8.2 per cent unemployment rate “seems likely to be frustratingly slow”.



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The testimony disappointed markets – which are on tenterhooks for a signal of further monetary easing from the Fed – with stocks falling and the dollar rising before turning around by midday in New York.

A run of weak reports on the economy, with net job creation falling to 80,000 in June, has led to speculation that the Fed could ease policy further as soon as its August meeting.

Mr Bernanke said that recent data points to annualised growth of less than 2 per cent in the second quarter of 2012. “Households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low,” he said.

The Fed chairman set out a list of options for further easing but refused to say which he might prefer. “The logical range includes different types of purchase programs. That could include Treasuries or include Treasuries and mortgage-backed securities. Those are the two things we’re allowed to buy,” he said.

Asset purchases – also known as quantitative easing – are a way of driving down long-term interest rates to boost the economy when short-term rates are already at zero.

The Fed’s other options include lending via the Fed’s discount window, communications about future policy, or cutting the interest that the Fed pays banks on excess reserves, Mr Bernanke said. “We haven’t really come to a specific choice at this point, but we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labour market.”

New data on Tuesday showed little sign of inflationary pressure – the overall consumer price index was up by 1.7 per cent on a year ago – and a rebound in industrial production, which was up 0.4 per cent in June after falling in May.

Mr Bernanke chided Congress for its failure to act on fiscal policy, citing it as one of two main risks to the economy alongside the eurozone crisis, and warning against a repeat of the market volatility and loss of economic confidence caused by last summer’s debacle over raising the debt ceiling.

The Fed chairman has ramped up his rhetoric on fiscal policy with each successive visit to Capitol Hill, but there is little sign that Congress is willing to compromise before the November election, even in order to boost growth.

“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery,” said Mr Bernanke. “Doing so earlier rather than later would help to reduce uncertainty and boost household and business confidence.”

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  1. Report Norwegianbear | July 17 10:02pm | Permalink
    “The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery,” said Mr. Bernake.
    What the H!@#$% does that mean. No wonder we're not making any progress anywhere. Obama wants to spend us into oblivian. Billions or rather trillions later we see nothing. No results, No progress, just more uncertainty about what stupid action he will take next. On top of that he's going after small business which is the #1 job creator in this country. How could anyone vote for this economic terrorist? How come everyone is just standing there watching as he is taking America apart? What's wrong with Americans?
  2. Report WhatDemocracy | July 17 9:56pm | Permalink
    There are bigger issues than the Fed's dismal report. Unelected officials took over Washington and control of the media after a coup and cover up. Most comments online are financed with our tax dollars. Big brother is trying to create the perception of public opinion while burying the truth. They think you can't handle the truth. Fact of the matter is we have no democracy, an actor as president, and freedom of press is an illusion.

    Our next election is shaping up to be as big of a sham as the last. Know why Sarah Palin's bus tour was really canceled last year? Do you know why she stayed 30 miles away from the second debate and chose the death of Steve Jobs to announce that she's not running? Know what leaked out? Sarah Palin and Cain aren't in the race for the same reason, the truth leaked out.

    Search PalinsDirtyLittleSecret for the BIGGEST cover up in world history before it disappears forever.
  3. Report Charles Austin Miller | July 17 8:58pm | Permalink
    Bye-Bye, Obama.
  4. Report steve2k2 | July 17 8:57pm | Permalink
    Will you admit now that this president's policies are responsible for the current economic malaise, or will you continue to keep your head in the sand and pound past presidents? If you vote again for Obama, then you are truly a committed liberal that needs to be committed. I am pleading with you to open your minds and make a wise decision when voting this time. I swear I will not hold your past votes against you and is far too important that you do the right thing now...please.
  5. Report GLCSmith | July 17 8:51pm | Permalink
    Obama and his advisers have no understanding whatsoever of how an economy works. They think that the answer is big government and high taxes. The problem is that the Soviet Union tried that and failed miserably, and everyone else who has followed that model has failed also, because it can not possibly work. Reagan showed the world that shrinking government and taxes ultimately leads to prosperity, but socialism is a sort or religion to people like Obama who continue to do what has always failed and expect it to work. The only solution to American economic problems is to fire Obama and all who think like him and replace them with people who understand how to let the free market work to restore prosperity.
  6. Report mick68 | July 17 8:37pm | Permalink
    All the permabulls have left is to call bears "doomers"

    This is what you do when you have no case to stand on, as the facts are horrifying. Now I guess even Ben is a doomer.
  7. Report clickron | July 17 8:34pm | Permalink
    It was over in this country when Ron Paul left the race. Now it doesn't matter which Goldman Sachs corporate puppet you pick, Obama or Romney. Both will take away free speech, guns and everything else you have left with the carbon tax. Goldman Sachs is heavily invested in making money on carbon taxes, that's why both candidates are bought, they've hedged their bet.
  8. Report clickron | July 17 8:24pm | Permalink
    4 Trillion spent on war against a ghost. We all got duked while the Military industrial Complex cleaned up. The sad part is, the little chicken neck Americans will give them another trillion if they say "boo", while the criminals laugh all the way to the bank.

    Stop trusting these criminals on the news, in the banking system and in the government.
  9. Report Brodave | July 17 8:18pm | Permalink

    Are you living under a rock. The problem is Obama and his Socialist Democrats.

    Get a clue dude.
  10. Report Brodave | July 17 8:13pm | Permalink
    “The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges..."

    If we had a competent leader in the White House we could do this. With the current dufus in the White House things will only get worse.

    Vote for anyone other than Obama and his Democrats this November - and beyond.
  11. Report Nobby | July 17 8:09pm | Permalink
    To my ears, Bernanke gave pretty clear hints that he doesn't see much use in launching the mythic QE3, or rather he thinks the limited benefits are outweighed by the risk of a spike in inflation and dislocations in the bond market.

    It's funny that to a lot of other ears, there was a clear hint he is going to do it. The strongest argument is basically he has to do it, because he promised if things got worse, he would. What I suspect is those who are most anxious for another round of easing are thinking more of their stock portfolios than the unemployment rate.

    Anyway, I suppose this is what they call confirmation bias.
  12. Report Texas Chris | July 17 8:01pm | Permalink
    End The Fed.
  13. Report Hersh_Monster | July 17 7:49pm | Permalink
    Who is John Galt?
  14. Report Clifford Anthony Paiva | July 17 7:49pm | Permalink
    Ben heads the third Central Bank of the United States (the FED), which of course is PRIVATELY owned. He (like Greenspan) is responsible for the creating FIAT money (out of thin air), in effect ballooning the economy. Bernanke those before him...removed 99.5%-99.%...from Ft. Knox (now devoid of tradeable and fine gold) to the NY Federal Reserve. Ben Bernanke is a thief...more commonly known today as a BANKSTER...and is part of the International Consortium of Bankers and Industrialists. A Bilderberger...?...of course.
  15. Report KH09 | July 17 7:14pm | Permalink
    @Scott W Peters. What tax dollars are you under the impression that the Fed is wasting?
  16. Report NairobiBoy | July 17 6:49pm | Permalink
    Gloom and doom is here to stay,
    Be afraid of what you hear,
    And give no heed to Bernanke's crew
    Nor to La lady Francaise with her wand.
    No more profits no more gains.
    All illusion for those who say,
    " Pour more money in, that's for gain,
    Add more and more to the gravy train".
    But the truth is coming for those liars
    Who prevent the tide coming in and out
    Time and time again we'll see it clear
    Money for nothing is nothing real.
  17. Report TRussert | July 17 6:34pm | Permalink
    So, after the bailouts, after the swindles of taxpayer dollars, after the special interests war on plundering the accumulative wealth of the poor and middle class, after the Wall Street scandals and derivative gambling, after a broken ineffective government, after mass financial failings in municipal and state budgets, after a GOP nominee so far out of touch with reality he might as well be an alien from another planet,and now after the interest manipulation of the LIPOR rip off of taxpayers, no one understands why consumers, that engine that drives 70% of this economy, don't want to make voluntary contributions to this whole mess? It's not bad enough this nation has taken on the scenario of some incoherent outlandish absurd novel, it's not even a good novel. Reality has become completely insane.
  18. Report Texas Ranger | July 17 6:23pm | Permalink
    "He offered no hint"? The only time BB smiled and his face lit up was after a Senator basically made the case for QE3,and encouraged him to launch, ASAP!
    BB will be pleading with his fellow Fed members to vote for it at their next meeting.
  19. Report NairobiBoy | July 17 5:52pm | Permalink
    Gloomy Benny !!
  20. Report James Thomas | July 17 5:49pm | Permalink
    @Stretch - I can't see how you get 'reptile'. I'm thinking more hamster. See when the big issues need fixing, up steps an FT reader to put things in context!
  21. Report Michael Barton | July 17 5:23pm | Permalink
    Americans, take note, your Congress is not representing your best interests. One would assume that party politics should be subservient to the national crisis in the economy. Apparently not so.
  22. Report Scott W Peters | July 17 5:16pm | Permalink
    Abolish the Fed. We'd save wasted tax dollars and they would be stopped from ever doing more harm. It's a no-brainer.
  23. Report Stretch | July 17 5:16pm | Permalink
    i think Berknanke looks particularly reptilian in this article's photo.
  24. Report Stoic | July 17 4:56pm | Permalink
    Bernanke wasn't going to say "Republican intransigence" on the Hill but that's much the biggest block in addressing "the nation's fiscal challenges".
  25. Report Dreamtimexkl | July 17 4:36pm | Permalink
    I listened to the broadcast as I was in my car and stuck in traffic so I heard all he had to say and some of the questioning by the US senators. The discussion rounded around the fiscal cliff and that there was need of doing something about it. Yet the truth is that aside from austerity and taxation nothing can be done. But the US is a huge global player, austerity means very big hits to the world's economy and stability. The truth is that the US will have to lose its trade deficit and lose its 0% lending rate....and when it does it has to still be able to have a normal unemployment far off are those targets? Twenty years? Thirty? The situation is serious and now its become a matter of avoiding a crisis which sparks a violent, calamitous wave of failures across the world. But the pain of Stimulant withdrawal is unavoidable and will be of significant magnitude.
  26. Report ElCabong | July 17 4:36pm | Permalink
    The problem with the economy sits squarely with congress, not FED policy.
  27. Report JEL1 | July 17 4:29pm | Permalink
    There are structural issues. If one cannot make money off 1.5% interest rates and in many countries now you can borrow money with below zero% lending rates after inflation and people do not want to borrow. It is not working.
  28. Report FT_analyst | July 17 4:04pm | Permalink
    Should we keep feeding in the market or should we fix the real issues? The markets will jump again but what will happen with the general public? They already being affected seriously by QE as it causes inflation.....I think it's just giving support to the rich and poor are getting more poor.
  29. Report definitively | July 17 3:52pm | Permalink
    Alan G was much better. Just look at how fast everything grew on his watch. Everybody was a lot richer then.
  30. Report sofina | July 17 3:49pm | Permalink
    The FEDS are now coming clean to the public. If you recollect, during the last 25 years, the fed has been saying that all is fine with the economy and if it is not fine, they have enough ammo to deal with any crisis.

    All these years, the Americans and the West Europeans were being drugged with a combination of high credit and protection. These people forgot what utilisation of LIMITED resources was. They were drugged in to compliance.

    Bernanke (and the US administration) is merely treating the symptom. The underlying cause is huge money supply (the cancerous growth) that is not backed with a sound business plan. Well, I guess that the US will implode under it's own drug overdose by 2016. Before that, . I expect Some European governments will topple and chaos will reign in the BAD 3 (US, Western Europe and Japan - Japan may escape). And not treating will bring the chaos closer and more violent.

    What will happen is that the stock markets will die a natural death and at the same time you will see an increase in PE and VC funds. These funds will increasing invest in companies bearing in mind that their exit routes will not be through the stock market but sale to strategic investors. George Soros has returned money to out side investors in the fund, stock markets are going in to lower orbits over a period of time with short spikes (very high) because growth is lacking in the OECD countries.

    Best wishes

    Kishore Nair from Mumbai
Brophy Tuesday 17 July 2012 - 2:04 pm | | Brophy Blog

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