WASHINGTON — Federal Reserve Board Chairman Ben S. Bernanke’s prepared semi-annual monetary policy testimony makes no bones about the economy worsening, saying the “situation has become distinctly less favorable” since summer, blaming “the continuing contraction of the U.S. housing market” and makes clear he favors Fed easing as the remedy.
Bernanke says “downside risks to growth remain” and the Fed “will act in a timely manner as needed” but fails to specify where that will lead.
The testimony also makes clear that the constraining factor for officials will be inflation, specifically whether oil prices stabilize and whether this anchors expectations. Bernanke says inflation could be lower or higher than expected, depending on commodity prices and whether consumers’ expectations are met.
The accompanying monetary policy report talks about expectations being for another 100 basis points of easing.
He mentions how inflation surged early last year, only to retreat, and implies the same could be the case now. If so, continued Fed easing is the most likely outcome from future Fed deliberations.
— Market News International