George S. May Business Blog

Ben Bernanke: fasten your seatbelts Americans, the worst is still to come

Fed Chairman Ben Bernanke gave further testimony, Wednesday, in regards to the current state and the future of our economy. Below is a synopsis of his assessment:

“NEW YORK (CNNMoney.com) – Data suggest the economic contraction may be slowing, but the economy is hardly out of the woods, Federal Reserve Chairman Ben Bernanke told lawmakers on Wednesday.

“A number of factors are likely to continue to weigh on consumer spending, among them the weak labor market, the declines in equity and housing wealth that households have experienced over the past two years, and still-tight credit conditions,” Bernanke said.

Bernanke said he still anticipates that the economy will start its recovery later this year, but cautioned that “recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring and the unemployment rate is likely to rise for a time, even after economic growth resumes.”

Well, at least he is being honest in not instilling a false sense of hope in Americans.

Mr Bernanke states that “even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs.”

Ben Bernanke then went on to warn that “near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth.”

Bottom line, after all of his remarks we can take away two main points.

One, in contradiction to recent statements from lawmakers, economists, and the media, Bernanke is definitely more cautious about the outlook of our economy’s growth. Bernanke made a point of telling Congress that while the US is moving in the right direction, the economy, right now, is not getting better, rather it is just getting not getting worse, as quickly. The massive wave of unemployment is not over and the American economy will be challenged further in months to come.

Another point, which was not evident from the above quotes, was his push to remove fiscal sustainability issues away from the Fed’s domain and back where they belong, with Congress and the administration.

Both, in my humble opinion, are very  fair, valid points. If I were to make a further prediction, should the second assessment not come into fruition in the near future, I expect Ben Bernanke to be much more forceful the next time he speaks to Congress on the issue.

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