Fed Chief Ben Bernanke gave his semiannual testimony to the Senate Banking Committee today. He sounded warnings on inflation as well as the weak economy.
"According to a report to Congress submitted along with Bernanke's testimony, the Fed said that FOMC members were more uncomfortable about the inflation outlook at their June meeting than they had been at any point this year.
The Fed sees slow growth for the second half of the year and into next year. And risks remain that the economy will be weaker than the forecast."
"Despite Bernanke's gloomy outlook - his most pessimistic since he took office in 2006 - he said the Fed had raised its forecast for overall economic growth. It is now looking for 1% to 1.6% growth for all of 2008, up from its April forecast of 0.3% to 1.2% growth.
While the forecast did not break down the growth by quarter, he said he did not expect any robust growth over the next six months. Bernanke said the revision in the full-year forecast was caused by stronger-than-expected growth in the first two quarters of 2008, helped by the stimulus checks that goosed spending in the second quarter."
His testimony helped spark a sell-off in oil later in the day.
I feel for Ben. The situation he inherited is far tougher than anything Greenspan had to deal with. Much of it was caused by Greenspan's low interest rate policy in the late 90's. That led to the Internet bubble, which crashed, led to another period of low rates causing the housing bubble, which crashed, which has now led to another period of low rates and a commodity bubble. We are clearly living through a series of bubbles and need to feel some pain to get them behind us.
At the moment, Bernanke can't lower or raise rates. He's stuck and the Fed has to simply hope that things get better instead of worse.
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