NotDeadYet
Beach Fanatic
November 30, 2007
Fed Chief Offers New Hint on a Rate Cut
By EDMUND L. ANDREWS
WASHINGTON, Nov. 29 ? Ben S. Bernanke, chairman of the Federal Reserve, acknowledged on Thursday that a ?fresh wave of investor concern? had led to tougher credit conditions that posed new risks to the economy, reinforcing the view that the Fed is likely to cut interest rates again at its next meeting on Dec. 11.
Speaking one day after another top Fed official signaled that policy makers might have to reduce interest rates to head off trouble, Mr. Bernanke pledged that the Fed would remain ?exceptionally alert and flexible? in setting policy.
?Economic forecasting is always difficult, but the current stresses in financial markets make the uncertainty surrounding the outlook even greater than usual,? Mr. Bernanke said in prepared remarks to a business group in North Carolina.
Noting that investors have been shaken by losses and write-downs on soured mortgages, Mr. Bernanke said a new round of turbulence in financial markets had reversed some of the recovery in credit markets after a first round of panic broke out in August over subprime mortgages.
?Needless to say, the Federal Reserve is following the evolution of financial conditions carefully, with particular attention to the question of how strains in financial markets might affect the broader economy,? he said.
Mr. Bernanke?s comments backed up those on Wednesday by Donald Kohn, the Fed?s vice chairman, who said that the economy might face bigger problems than the central bank had expected and that policy makers would have to be ?nimble.?
In sharp contrast to the Fed?s increasingly gloomy outlook, the Bush administration predicted on Thursday that the economy would experience little more than a downward blip in the next few months and grow as rapidly in 2008 as it appears to have grown in 2007.
In a new forecast prepared by the White House and the Treasury Department, the administration predicted the economy will expand by 2.7 percent in 2008, almost as fast as this year, and that unemployment will remain almost as low as it is today.
?We continue to see signs of healthy economic growth, which only underscores the resilience of our economy despite continued challenges in the housing sector,? said Edward P. Lazear, chairman of the Council of Economic Advisers. ?We are entering a record fifth year of continuous job growth while the unemployment rate remains low and we believe that these trends will continue.?
The new forecast was at odds with the Fed?s forecast for ?subpar? growth in 2008, but even more out of sync with most economists on Wall Street.
The ?central tendency? among forecasts by Fed officials calls for growth next year between 1.8 percent to 2.5 percent. And even that estimate, officials warned earlier this month, is loaded with uncertainty and could be too optimistic.
Wall Street economists, most of whom are even gloomier than the Fed, quickly dismissed the White House forecast.
?It is completely at odds with the Fed?s forecast, the consensus forecast and the message that has been embedded in financial markets for the past six months,? said Robert J. Barbera, chief economist at Hoenig & Company. ?If you support the White House forecast, you are saying that the bond markets are crazy.?
David Rosenberg, chief United States economist for Merrill Lynch, estimated on Thursday that the economy faced a 60 percent chance of slipping into a recession in the months ahead. Many other analysts place the odds of a recession at about fifty-fifty.
At a breakfast meeting on Thursday with reporters, Mr. Lazear acknowledged that the economy is likely to slow in the months ahead and that, largely because of the housing downturn, the White House had lowered its expectations from six months ago.
"Obviously the housing market has been softer than people expected,? he said. "We are not the only ones who were surprised by that. For the most part, our revisions are in line with other revisions."
But Mr. Lazear said that the slowdown would be short-lived and that the economy would expand almost as rapidly next year as it appears to have done this year.
The White House was closer to the Fed on its estimate about unemployment, predicting that it would average 4.9 percent next year ? up slightly from 4.7 percent today. But many analysts think the Fed?s unemployment forecast is itself too optimistic, because it is inconsistent with its forecast for slower growth.
Economists on Wall Street and at the Federal Reserve have become increasingly spooked by new evidence that the panic in subprime mortgages, and in the broader mortgage market, is now leading to a credit crunch for many business borrowers as well. Compounding that worry are early hints that businesses are cutting back on orders for new equipment and that consumers, pinched by high gasoline prices, are cutting back on spending.
?These uncertainties require flexible and pragmatic decision-making,? Mr. Kohn said.
The Commerce Department, in its first revision, estimated on Thursday that the economy expanded at a torrid annual pace of 4.9 percent during the third quarter ? the fastest quarterly growth in four years and even faster than the government?s earliest estimate. But most economists are expecting growth to decelerate sharply in the current quarter and into the early months of next year.
Fed Chief Offers New Hint on a Rate Cut
By EDMUND L. ANDREWS
WASHINGTON, Nov. 29 ? Ben S. Bernanke, chairman of the Federal Reserve, acknowledged on Thursday that a ?fresh wave of investor concern? had led to tougher credit conditions that posed new risks to the economy, reinforcing the view that the Fed is likely to cut interest rates again at its next meeting on Dec. 11.
Speaking one day after another top Fed official signaled that policy makers might have to reduce interest rates to head off trouble, Mr. Bernanke pledged that the Fed would remain ?exceptionally alert and flexible? in setting policy.
?Economic forecasting is always difficult, but the current stresses in financial markets make the uncertainty surrounding the outlook even greater than usual,? Mr. Bernanke said in prepared remarks to a business group in North Carolina.
Noting that investors have been shaken by losses and write-downs on soured mortgages, Mr. Bernanke said a new round of turbulence in financial markets had reversed some of the recovery in credit markets after a first round of panic broke out in August over subprime mortgages.
?Needless to say, the Federal Reserve is following the evolution of financial conditions carefully, with particular attention to the question of how strains in financial markets might affect the broader economy,? he said.
Mr. Bernanke?s comments backed up those on Wednesday by Donald Kohn, the Fed?s vice chairman, who said that the economy might face bigger problems than the central bank had expected and that policy makers would have to be ?nimble.?
In sharp contrast to the Fed?s increasingly gloomy outlook, the Bush administration predicted on Thursday that the economy would experience little more than a downward blip in the next few months and grow as rapidly in 2008 as it appears to have grown in 2007.
In a new forecast prepared by the White House and the Treasury Department, the administration predicted the economy will expand by 2.7 percent in 2008, almost as fast as this year, and that unemployment will remain almost as low as it is today.
?We continue to see signs of healthy economic growth, which only underscores the resilience of our economy despite continued challenges in the housing sector,? said Edward P. Lazear, chairman of the Council of Economic Advisers. ?We are entering a record fifth year of continuous job growth while the unemployment rate remains low and we believe that these trends will continue.?
The new forecast was at odds with the Fed?s forecast for ?subpar? growth in 2008, but even more out of sync with most economists on Wall Street.
The ?central tendency? among forecasts by Fed officials calls for growth next year between 1.8 percent to 2.5 percent. And even that estimate, officials warned earlier this month, is loaded with uncertainty and could be too optimistic.
Wall Street economists, most of whom are even gloomier than the Fed, quickly dismissed the White House forecast.
?It is completely at odds with the Fed?s forecast, the consensus forecast and the message that has been embedded in financial markets for the past six months,? said Robert J. Barbera, chief economist at Hoenig & Company. ?If you support the White House forecast, you are saying that the bond markets are crazy.?
David Rosenberg, chief United States economist for Merrill Lynch, estimated on Thursday that the economy faced a 60 percent chance of slipping into a recession in the months ahead. Many other analysts place the odds of a recession at about fifty-fifty.
At a breakfast meeting on Thursday with reporters, Mr. Lazear acknowledged that the economy is likely to slow in the months ahead and that, largely because of the housing downturn, the White House had lowered its expectations from six months ago.
"Obviously the housing market has been softer than people expected,? he said. "We are not the only ones who were surprised by that. For the most part, our revisions are in line with other revisions."
But Mr. Lazear said that the slowdown would be short-lived and that the economy would expand almost as rapidly next year as it appears to have done this year.
The White House was closer to the Fed on its estimate about unemployment, predicting that it would average 4.9 percent next year ? up slightly from 4.7 percent today. But many analysts think the Fed?s unemployment forecast is itself too optimistic, because it is inconsistent with its forecast for slower growth.
Economists on Wall Street and at the Federal Reserve have become increasingly spooked by new evidence that the panic in subprime mortgages, and in the broader mortgage market, is now leading to a credit crunch for many business borrowers as well. Compounding that worry are early hints that businesses are cutting back on orders for new equipment and that consumers, pinched by high gasoline prices, are cutting back on spending.
?These uncertainties require flexible and pragmatic decision-making,? Mr. Kohn said.
The Commerce Department, in its first revision, estimated on Thursday that the economy expanded at a torrid annual pace of 4.9 percent during the third quarter ? the fastest quarterly growth in four years and even faster than the government?s earliest estimate. But most economists are expecting growth to decelerate sharply in the current quarter and into the early months of next year.
