Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, gave his “Semiannual Monetary Policy Report to the Congress” this morning.
Mr. Bernanke basically said nothing.
The stock market dropped; apparently any hopes for an additional round of quantitative easy were dashed. What can one say?
The Fed’s forecast for the growth of real GDP: between 2.2 percent and 2.7 percent, slightly higher than the rate of growth experienced in the second half of 2011.The Fed’s forecast for the inflation in the prices related to consumption expenditures: between 1.4 percent and 1.8 percent, about the same as the annual rate of increase in the second half of 2012. Unemployment is expected to stay around the level it achieved in January 2012…around 8 percent since economic growth is expected to remain slightly below its long-term trend.
Where does the risk lie in the economy in the future? It seems that there is still “persistent downside risks to the outlook for real activity.” The job market “remains far from normal.” The fundamentals for household spending “continue to be weak.” The housing sector is giving off mixed signals, at best. Manufacturing is improving and real business spending for equipment and software seems to be picking up.
However, the European situation remains a concern. We are told that the Federal Reserve is “in frequent contact with our counterparts in Europe and will continue to follow the situation closely.”
And, given this environment, the Federal Reserve will continue to keep the target range for the federal funds rate in the 0 to ¼ percent range. The Federal Open Market Committee “expects economic conditions to warrant exceptionally low levels of the federal funds rate to at least through late 2014.”
There you have it. Economic growth is expected to continue at a rate that is slightly below its long-term trend of about 3.0 percent through 2013. Inflation is to stay below the Fed’s target of 2.0 percent for the near future. And, the risks inherent in the current financial and economic environment continue to be on the downside with the European situation being the main worry.
The banking system will remain flush with excess reserves. The larger banks will continue to grow larger and take over more and more of the financial system. Small- and medium-sized commercial banks will continue to fail or be merged out of the banking system. And, regulatory reform will continue to lag behind what is happening in the real world.
That is, there is nothing new to report. Thank you, Mr. Bernanke!