Understanding Bernanke's Cautious Predictions

How alarmed should we be about his testimony today?

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Federal Reserve Chairman Ben Bernanke testified on Wednesday before the House Budget Committee. His testimony, which included a warning that "the federal budget appears to be on an unsustainable path," has raised various levels of alarm among finance journalists and economics bloggers. Here's what they have to say.

  • Bad, Bad News on Deficit  The New York Times' Sewell Chan says that Bernanke "reiterated his view that the economic recovery would likely be slow and painful for many Americans. The Fed projects gross domestic product, the broadest measure of economic activity, to rise about 3.5 percent this year — a pace barely above that needed to keep pace with the growth in the labor force. ... Bernanke said that he expected to the economy to grow at a 'modest pace' this year." Chan expects the comments "will offer little comfort to either Democrats or Republicans."
  • No Double-Dip Recession  The Wall Street Journal's Jon Hilsenrath writes, "Asked whether a double-dip recession is likely, Mr. Bernanke repeated a reassurance he offered Monday that he doesn’t think so." Explaining Bernanke's dour tone, Hilsenrath writes, "But the Fed chairman doesn’t want to be called out later if the economy stumbles. His reassurances about housing and the economy in 2007 proved wrong. So he’s adding all kinds of caveats to his forecast."
  • He's Wrong on Deficit Reduction  Economics blogger Brad DeLong warns, "That there is only a 20% chance that the unemployment rate will rise in the next year does not make this the right time to reduce the federal deficit or to reduce state and local spending."
  • Long-Term, He's More Optimistic  MarketWatch's Greg Robb reports, "The U.S. economy is strong enough to withstand the fiscal tightening that is ahead, Federal Reserve Board Chairman Ben Bernanke said Wednesday. 'Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the recovery in economic activity,' Bernanke said."
  • Bernanke Wants Continued Stimulus Spending  The Wall Street Journal's Phil Izzo explains, "Federal Reserve Chairman Ben Bernanke pleaded with Congress to cut the federal budget deficit — but not now. ... Bernanke isn’t calling for immediate belt tightening, but warning that even absent the stimulus spending, the deficit must be dealt with."
  • Headed Back Into Recession?  The Atlantic's Derek Thompson examines the evidence, listing five reasons to be optimistic that we'll recover and 5 to be pessimistic and conclude we're headed into a double-dip. He counts the European crisis as evidence for both conclusions, because "The European crisis is scary, but it puts a lid on two things we don't want to rise: interest rates and oil prices."
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