Bernanke Comments Reinforce Stable Interest Rates View

Excerpt from our One-Page Annotated News Summary:

Bernanke Says Housing in 'Substantial Correction' (Bloomberg)

Summary: Investors inferred that the Fed will keep interest rates unchanged for the rest of the year at 5.25% from comments in Q&A following a speech yesterday by Chairman Ben Bernanke. Bernanke said, "There is currently a substantial correction going on in the housing market," one of the, "major drags that is causing the economy to slow," and that, "we do believe that inflation is going to be coming down gradually over time." Kansas City Fed President Thomas Hoenig said in a speech in Albuquerque, New Mexico that, "Inflation, honestly, right now is too high," but that monetary policy is, "not tight, but modestly restrictive." Bernanke's speech was devoted to the fiscal challenges of the aging U.S. workforce, and concluded that entitlement programs needed to be "reformed", taxes boosted, spending cut, or a combination of all three. Separately, the Institute for Supply Chain Management reported that its service industries index fell to 52.3, the lowest since April 2003, but still indicative of expansion.
Related links: Full article • Full text of Bernanke speech • Note similar but more detailed remarks in a speech yesterday by Fed Vice Chairman Donald Kohn

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Comments

[Ricardo Arroja:]

The next move in rates is down - soon rather than later. Frankly, it seems obvious to me that Bernanke is the most dovish US central banker since that chap in the 70's (sorry, but I don't recall his name). But then again, where's inflation coming from? In my view, it's a China related phenomena that translates into higher commodity prices. Period. There's no inflation coming from US wages - those are being kept under a lid due to foreign job outsourcing. Inflation is just coming from energy prices. But currently, crude oil is almost 20% below its all time high, natural gas is 65% below its all time higher after Katrina/Rita last year, sugar (despite all the ethanol buzz) is almost 40% below this year's earlier relative high....Bernanke is right to be dovish. However, Bernanke is not right to be the stock market cheerleader - that would be something outrageous for a central banker. Chairman Bernanke: please give us back M3 figures.

2006 Oct 05 10:19 AM