WASHINGTON, Nov. 8 — Ben S. Bernanke, chairman of the Federal Reserve, told Congress today that the economy is going to get worse before it gets better, a message that got a chilly reception from both Wall Street and politicians.Now, I'm at this point not an economist with the knowledge of, say, Paul Krugman. But even I can admit that a sluggish economy is never a good thing. Of course, lowering the interest rates could be somewhat of a Catch-22. Lowering them now will stimulate extra borrowing of funding, therefore putting more money in circulation, but of course that comes at the expense of having loanable funds around later to promote investment and growth.
On a day when stock prices swung wildly, the dollar hit another new low against the euro and further signs emerged that consumers are growing more cautious about spending, Mr. Bernanke warned that the economy is about to “slow noticeably” as the housing market continues to spiral downward and financial institutions tighten up on lending.
But in a disappointment to investors, Mr. Bernanke offered no signal that the central bank might soften the blow by lowering interest rates for a third time this year at its next policy meeting on Dec. 11
The plus side is, however, that there's still some growth, just not nearly as much as we're used to.
Testifying before the Joint Economic Committee, the Fed chairman said that the two rate cuts in September and October “should” be enough to keep the economy from slipping into a recession. Without being specific, he reinforced statements by other Fed policymakers that the economy would have to show signs of stalling out entirely before they would reduce rates again.
Asked if he saw any risks of a recession, Mr. Bernanke demurred. “We have not calculated the probability of a recession,” he responded. “Our assessment is for slower growth, but positive.”
Stay tuned.
2 comments:
It's interesting that you mention these recent market trends. For our presentation in Chicago, we predicted a rate cut to around 3.5% over the next year (though perhaps not a rate cut in December-as seems to be sustained in this more recent statement). Aside from the usual "bail out" argument, there are real reasons for further rate cuts, as seen from more signs of slow economic growth.
At this point I'm relatively new into the arena of economic thought, but my instinct would probably be to cut the rates to get more money in circulation at this point.
Keynesianism at it's finest, haha!
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