Ben Bernanke cautious on US economy

Unusually uncertain - that is how Federal Reserve Chairman Ben S. Bernanke sees the prospects for the US economy. His guarded view of the world’s largest economy sent US stocks into a bit of a tizzy but Wall Street managed bounced back the next day. The Fed chief also said that the central bank is willing to do more to shore up growth. But he did not elaborate further on what actions the Fed might take should the economic recovery starts losing steam. The markets seemed disappointed that Bernanke did not offer any specifics about a contingency plan for additional stimulus measures if there is another dip in the US economic growth.

Bernanke raises red flag as fiscal gap climbs

Federal Reserve chairman, Ben S. Bernanke, called for a plan to restore fiscal balance, even as the Barack Obama administration spends its way out of trouble in the aftermath of the worst economic crisis since the Great Depression. Testifying before the House Budget Committee, Bernanke said the US government must address the immediate problems of a crippling recession that has erased trillions of dollars in household wealth, hit investment portfolios and sent unemployment soaring. Still, he said, the government needs to think about putting its fiscal house back in order. "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," he said. "Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance," he added. The deficit is expected to reach US$1.8 trillion this year, the highest projections as a share of gross domestic product (GDP) since World War II. He said that the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending. The Fed chief said deficit concerns are already influencing the prices of long-term Treasuries. Yields on 10-year notes have climbed about 1% since the Fed announced plans in March to buy US$300bn of long-term government bonds.

Bernanke seeks data to fix the mess

Alan Greenspan trusted his instincts. Ben Bernanke trusts the MAQS.

For the past several days, the MAQS - a group of analysts in the Federal Reserve's Macroeconomic and Quantitative Studies unit -- have run a series of what-if scenarios on the US economy that will play a critical role in next week's interest-rate decision, according to a report on the website of Bloomberg.

"The simulations will supplement the forecast handed to policy makers at the start of their September 18 meeting, and may determine the size of the rate cut almost universally predicted by Wall Street economists," the report said.

Bernanke has championed the team's work since becoming Fed chairman in 2006 because he wants to sift through models, projections and anecdotes before coming to conclusions. His approach contrasts with that of predecessor Alan Greenspan who relied more on his own reading of conditions, and as a result probably would have cut rates to insure against a recession long before the Federal Open Market Committee (FOMC) gathering.

The FOMC will next week lower the overnight lending rate between banks to 5% from 5.25%, according to the median forecast of economists surveyed by Bloomberg. The reduction would be Bernanke's first and may be followed by at least two more before year-end, the report said.