With talk of recession, inflation, and stagnation dominating financial news, Federal Reserve Chairman Ben Bernanke, in his written testimony to the House Financial Services Committee, today gave a sobering but yet not overly pessimistic view of the U.S. economy, which was followed closely by investors.
Bernanke noted the widespread effects of the subprime mortgage crisis in the housing and credit markets. The growth in job creation has slowed, and unemployment has inched up. But he said that there were some encouraging signs in the nonfinancial markets:
In the consumer sector, he noted that consumer spending has slowed somewhat as the fall in housing prices has affected their net worth, and consumers are facing higher costs for energy and food.
But he said that there were some encouraging signs in the nonfinancial markets:
On a more encouraging note, we see few signs of any serious imbalances in business inventories aside from the overhang of unsold homes. And, as a whole, the nonfinancial business sector remains in good financial condition, with strong profits, liquid balance sheets, and corporate leverage near historical lows.
Bernanke also pointed to the continued strength of the U.S. export market. He said that real exports “increased at an annual rate of about 11 percent in the second half of last year, boosted by continuing economic growth abroad and the lower foreign exchange value of the dollar.”
In terms of the Fed’s response to credit tightening in interbank lending, Bernanke noted that the Fed has set up a term auction facility, “through which prespecified amounts of discount window credit are auctioned to eligible borrowers.” He also said that the Fed would monitor the monetary situation closely and was prepared to take timely steps if warranted.
That statement was interpreted by investors as indicating the Fed might lower interest rates in the future to stimulate the economy, if needed.