Ben Bernanke testifies to Congress on US economy – as it happened
US Federal Reserve chairman tells Senate Budget Committee he plans to keep interest rates at super-low level
Feb 7 2012
12.09pm: Bernanke has left the building. The hearing was less contentious than it could have been considering that the Fed chairman is now a bette noir of the Republicans and is, according to Ron Paul, about to destroy the middle class.
US stock markets seem to have taken his gloomy prognostications about the future impact of the debt crisis in their stride. The Dow is up close to 30 points at the moment. Interestingly the US stock markets also seem to be giving a Gallic shrug to the latest Euro news too. Not so long ago a general strike in Greece would have wiped trillions off the US markets. But not today. Of course there is always tomorrow.
There was no mention of last Friday’s excellent jobs report from Bernanke. I’m taking that as a sign that Ben doesn’t want us to read too much into one month’s figures. Be warned. But in general he seemed to be saying that things are getting better, apart from the fact that in the long-run we are all going to hell in a handcart.
We are wrapping up the Bernanke blog. Those of you looking for Euro news can get your live fix here from my colleague Graeme Wearden.
11.51am: The committee’s ranking member, Sen. Jeff Sessions, just mentioned Charles Schwab’s attack on Fed policy in The Wall Street Journal. The founder of Charles Schwab argued that the Fed’s continued low interest rate policy has had terribly unintended consequences:
In short, the Fed’s actions, rather than helping, are having the perverse effect of destroying the confidence of businesses and individuals to invest and the willingness of banks to loan to anyone but those whose credit is so strong they don’t need loans.
Bernanke clearly doesn’t agree. But he dodges rather than getting stuck in. “We are on a path that is unsustainable,” he says. On that I think we can all agree.
11.40am: Pretty bleak stuff from Bernanke now about the US’s looming debt crisis.
“It’s very clear that on current reasonable expectations of policy that the US debt will become unsustainable in 15-20 years at most,” says Bernanke.
He says that the US “clearly needs some major changes” and if those aren’t made this may not be a problem that the US can just boot down the road for the next generation to deal with.
“These are concerns that could have effects much sooner if markets lose confidence,” in the US’s ability to stabilise its debts, he warns. “In fairness to the hard working people here there’s still a lot of lack of clarity. Everybody want a lower deficit but nobody wants to lose their own programs or tax cuts,” says Bernanke.
11.28am: A grown up question. Sen Pat Toomey wants to know what happens if inflation rises and unemployment remains high. “I’m concerned about some of the unintended consequences of maintaining zero interest rates,” he says.
He says he’s worried about savers and whether zero interest rates encourage excessive risk taking and the creation of new bubbles.
“We are quite aware of these costs and risks,” says Bernanke. He says savers hold other securities that depend on the economy and that with unemployment so high the Fed has to encourage risk taking to some extent to encourage investment in job creating businesses.
Interest rates will rise one day, he says. But not any time soon by the sound of it.
11.21am: Sen. Mark Warner, who Wikipedia tells me makes wine on his Virginia estate, says America’s rallying cry at the moment is at least we are better than the EU.” He concedes its not as good as “give me liberty or give me death.”
11.14am: Sen. John Cornyn, who really looks like a senator with his Newt Gingrich/John McCain white hair and big fleshy face, is asking about Europe.
“Certainly parts of Europe are in recession. Whether the Eurozone itself goes into recession remains to be seen,” says Bernanke. Exports to Europe are about 2% of GDP, “it’s not totally make or break” but it could be an influence, he says.
11.10am: It’s all very bitty at the moment. Here’s some bullet points:
* The US isn’t Japan, they learnt the lessons of the Japanese economic crisis and moved to underpin the financial system much more quickly. (Sure Ben, we’ll come back to you on that 10 years from now).
* A sharp spike in oil prices could “stop” the recovery. (Nobody mentions Iran).
* The housing market is a mess. Abandoned houses are a problem. (Click here for reasons not to feel too bad for Ben when the Republicans beat him up. Subprime loan losses were “bumps” in the road according to Ben).
10.53am: The questions are now about the tax cuts and the budget. President Obama has been “phoning it in” says Sen. Ron Johnson, a Tea Party favourite and a man never saw a minimum wage he wouldn’t cut.
“I am in favour of the law of arithmetic,” says Ben. I’m actually warming to this man. He suggests that if you want to cut taxes then you have to pay for it another way and that if you want to raise spending then you have to raise more taxes. Radical.
“You want to make a credible strong plan but one that phases in so the economy doesn’t hit a pot hole,” he says.
10.46am: Sen. Ron Wyden, a Democrat, is asking Bernanke about “shocks to the system.” Isn’t all this political bickering a shock to the system?
“Dur. Hell yer!” says Bernanke. “You point scoring, petty minded morons are K-razy!!!” Oh ok he doesn’t. Well not directly. He does say that “policy uncertainty” is an issue for the economy and for regulators. “I would site the example of the debt ceiling debate last summer which was clearly a shock,” he adds. It certainly was.
10.32am: Sen. Bill Nelson is asking about the budget rows to come. Nelson says he was one of the senators who wanted the super-committee set up tackle the US’s massive budget deficit to “go big”.
“I was supportive of being aggressive last summer,” says Bernanke. BUT he says the major problems that the US faces are 10-15 years out as the population ages. He says the US needs a “broad based discussion” about sustainability. For which we can read tax increases as well as budget cuts.
Then he adds its “not my place” to make suggestions. A sensible move seeming as all the Republican presidential hopefuls are calling for his head. Weird really as he seems really rather sensible these days. Chastened perhaps after all those horrifically wrong calls about the long-term sustainability of the housing bubble.
10.29am: Bernanke is reiterating his pledge to protect the US from Euro-contagion.
We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy.
10.21am: Bernanke is reading his testimony from last week, someone is clearly too busy to change the script. You can read it here.
Uncertain job prospects, along with tight mortgage credit conditions, continue to hold back the demand for housing. Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed. A persistent excess supply of vacant homes, largely stemming from foreclosures, is keeping downward pressure on prices and limiting the demand for new construction
Bernanke says conditions in the business world are improving quickly but that Europe could be a drag on the economy. This we know. It will be interesting to see what he has to say about the new jobs report and if he gets asked about the latest ructions in Greece.
You can read out live blog about the general strike in Greece and all the latest on the Euro meltdown here.
10.17am: Senator Jeff Sessions is warning that the US is on an “unsustainable debt course” and the Republican senator is unconvinced that president Barack Obama is going to do anything about that. Senator Bill Nelson, Democrat, is talking about “partisan bickering”. No one is getting along. Surprise!
10.16am: Federal Reserve chairman Ben Bernanke is about to address the Senate budget committee on the US economic outlook for this year and future of economic growth.
The recovery in the US economy is “frustratingly slow” Bernanke said last week, “particularly from the perspective of the millions of workers who remain unemployed or underemployed.”
Last Friday the US Labour Department released stronger than expected jobs figures suggesting the pace of recovery may have quickened, at least in January. Today Bernanke is likely to be quizzed on the job numbers plus any risk from the continuing mess in Europe.
Bernanke’s prepared remarks are identical to his testimony last week to the House Budget Committee. In precis: slow steam ahead, things are better but the outlook remains “uncertain.”
Bernanke is expected to reiterate the Fed’s plan to keep a key interest rate at a record low near zero until at least late 2014.
The super-low rates are meant to encourage consumers and businesses to borrow and spend and further strengthen the economy.
We’ll be live blogging his comments here. Stay tuned.