Bernanke channels his inner Pollyanna for growth estimates
The incongruity of Fed Chairman Ben Bernanke standing up in front of a bunch of $3,000 suits - with blond pig tails and a polkadot dress - is an appropos image to contemplate given this optimistic economic forecast delivererd to the International Monetary Conference in Atlanta yesterday:
The business sector generally presents a more upbeat picture. Capital spending on equipment and software has continued to expand, reflecting an improving sales outlook and the need to replace aging capital. Many U.S. firms, notably in manufacturing but also in services, have benefited from the strong growth of demand in foreign markets. Going forward, investment and hiring in the private sector should be facilitated by the ongoing improvement in credit conditions. Larger businesses remain able to finance themselves at historically low interest rates, and corporate balance sheets are strong. Smaller businesses still face difficulties in obtaining credit, but surveys of both banks and borrowers indicate that conditions are slowly improving for those firms as well.
His pronouncements on prospects for inflation are equally ebullient:
Although the recent increase in inflation is a concern, the appropriate diagnosis and policy response depend on whether the rise in inflation is likely to persist. So far at least, there is not much evidence that inflation is becoming broad-based or ingrained in our economy; indeed, increases in the price of a single product--gasoline--account for the bulk of the recent increase in consumer price inflation.1 Of course, gasoline prices are exceptionally important for both family finances and the broader economy; but the fact that gasoline price increases alone account for so much of the overall increase in inflation suggests that developments in the global market for crude oil and related products, as well as in other commodities markets, are the principal factors behind the recent movements in inflation, rather than factors specific to the U.S. economy. An important implication is that if the prices of energy and other commodities stabilize in ranges near current levels, as futures markets and many forecasters predict, the upward impetus to overall price inflation will wane and the recent increase in inflation will prove transitory. Indeed, the declines in many commodity prices seen over the past few weeks may be an indication that such moderation is occurring.
Move along...nothing to see here folks. Just your normal 10% rise in food prices...
The "improvement in credit conditions" has been minuscule as a practical matter. Same goes for most of the other benchmarks Bernanke mentions. In fact, if Mr. Pollyanna would get his nose out of his charts and figures long enough to see what is really happening in most of the country, he'd be shocked to find that fully 60% of the nation still thinks we're in a recession. The improvement in the labor market isn't "losing momentum" as Bernanke suggests. How can that be so when there wasn't much improvement at all to begin with?
Bernanke has to put the prom dress on a pig because it has been his loose money (a gigantic understatement) policies that have contributed to business uncertainty and hence, the failure of the economy to ignite. His has been a disastrous tenure at the Fed and we may yet suffer ruinously for his incompetence.