Bernanke Speaks, Sticks to Script
- Apr 28, 2011
Federal Reserve Chairman Ben Bernanke was center stage on Wednesday, holding the first-ever press conference by a Fed chairman in the 98-year history of the central bank. That in itself is historic, in a footnote sort of way, but the content of what Bernanke said wasn’t much different from what he’s been saying all along (though not precisely in these words): The economy’s growing, but not as fast as we would like; inflation is a little high, but not as bad as all that; and QE2 isn’t the reason commodity prices have escalated recently, so leave us alone about that.
It wasn’t an exciting event, which would be the last thing the Fed or its chairman would want. Before the question period, the chairman went over the latest from the Federal Open Market Committee and then the most recent economic forecasts by the Fed, such as the fact that the central bank’s estimates of U.S. GDP growth have been adjusted downward to “3.1 percent to 3.3 percent” from a January estimate of “3.4 percent to 3.9 percent.” But the Fed is now a little more optimistic about unemployment. Previously, it had forecast 8.8 percent to 9 percent as the 2011 unemployment rate, while now its estimate is 8.4 percent to 8.7 percent. It expects “core” inflation to be 1.3 percent to 1.6 percent, up a little from its January predictions.
Neil Irwin of the Washington Post asked the first question of the first press conference, which was about the 1Q11 numbers expected on Thursday. According to the bearded one, the factors pushing growth down “appear to be transitory.” The closest Bernanke came to making news was when he was asked to define “extended period,” as in, interest rates will remain low for “an extended period.” He almost said that it amounted to “a couple meetings,” but then backpedaled away from such clarity.
A mixed bag of other economic news
While the chairman was entertaining the media, other economic news emerged on Wednesday. Moody’s predicted in a report released on Wednesday that 2011 will be the “toughest year so far” for state and local governments. Only two such entities rated by Moody’s defaulted in 2010, but the rating agency is expecting more defaults than that this year, plus a number of “near misses.” During 1Q11, Moody’s downgrades ran ahead of upgrades 3.9 to 1, the ninth consecutive quarter with more downs than ups.
But the news wasn’t all bad. The Federal Reserve of Chicago’s Midwest Manufacturing Index rose from 83.4 in February to 85 in March. The index stood at 75.5 in March 2010, so the Midwest is taking advantage of the upsurge in the U.S. industrial sector. The U.S. Industrial Production Index, according to the Chicago Fed, upticked month-over-month from 91 to 91.7, and year-over-year from 85.6 to 91.7.
Also, the U.S. Department of Commerce said on Wednesday that the homeowner-vacancy rate edged down to 2.6 percent in the first quarter of 2011, compared with 2.7 percent in the last quarter of 2010. The rate measures the number of residential units meant to be owner-occupied that are currently vacant and for sale.
Another study by Commerce reported by The Wall Street Journal on Wednesday–termed a “non-scientific” study–found that, in February, American consumers spent an annualized $1.2 trillion on “non-essential” items. The non-scientific part is in the definition of non-essential. The study, at least, counted the likes of alcohol, candy, games of chance, jewelry and pleasure water craft, which amounted to 11.2 percent of all consumer spending. In 2001, that percentage was 9.3 percent; in 1959, it was 4 percent. This study counts as good news or bad, depending on one’s take on luxury spending.
Wall Street either liked what Bernanke said, or liked the fact that it was essentially a non-event, but in any case the Dow Jones Industrial Average gained 95.59 points, or 0.76 percent. The S&P 500 was up 0.62 percent, and the Nasdaq advanced 0.78 percent.