Monday, October 15, 2007

Bernanke Drops No Hints (Again)

Ben Bernanke, as has been his habit, dropped very few hints in his speech today on "The Recent Financial Turmoil and its Economic and Policy Consequences."

The majority of the speech was a review of financial market events, mostly repeating the points made by other recent Fed speakers, plus a review of FOMC deliberations, which he paraphrased from the FOMC minutes that were released last week.

The only new information we get is his assessment of events since the Sept 18 meeting, along with the data he'll be watching most closely:

Since the September meeting, the incoming data have borne out the Committee's expectations of further weakening in the housing market, as sales have fallen further and new residential construction has continued to decline rapidly. The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year. However, it remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions. We will be following indicators of household and business spending closely as we update our outlook for near-term growth. The evolution of employment and labor income also will bear watching, as gains in real income support consumer spending even if the weakness in house prices adversely affects homeowners' equity.
In short, I don't think this speech is going to change anyone's mind about the outcome of the Oct 31st FOMC meeting. It sounds to me like Bernanke is still largely undecided himself.

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