Bernankes Strong Signal to Senate
In his testimony in front of the Senate Banking Committee on Tuesday, Federal
Reserve Chairman Ben Bernanke sent a strong signal that he backs continuation of
the central bank's $85 billion bond-buying program. "In the current economic
environment, the benefits of asset purchases...are clear," Bernanke said,
“Monetary policy is providing important support to the recovery while keeping
inflation close to the FOMC’s 2% objective.” He said if the Fed’s asset
purchases can promote growth, this will lower the deficit and “dwarf” any
reduction in Fed’s remittances to Treasury. Bernanke said, “Inflation is
currently subdued, and inflation expectations appear well anchored: neither the
FOMC nor private forecasters are projecting the development of significant
Bernanke said that he does not see any sign that the Fed's ultra-loose monetary
policy is creating a bubble in equity markets. “We do not see the potential
costs of the increased risk-taking in some financial markets as outweighing the
benefits of promoting a stronger economic recovery and more-rapid job creation,”
he said. Earnings are very high and equity holders are being risk-averse in
their behavior, Bernanke said. The Fed has a tight eye for bubbles in financial
asset markets, is trying to ascertain who would be hurt if the Fed was wrong and
if, an asset class was in a bubble and the bubble burst. "We do not rule out
that, if these problems become sufficiently worrisome, that they would be taken
into account in our monetary policy," he said. Bernanke said the central bank
“remains confident that they have the necessary tools to tighten monetary
policy, when the time comes to do so.”
Bernanke asked the White House and Congress to defuse the sharp automatic
spending cuts known as the sequester that are expected to go into effect Friday
and warned that the plan would create a “significant” burden on the economy in
the short run.
A hypothetical write-down of Italian debt would not inflict serious damage on
U.S. financial institutions, "Our assessments of our banking exposure to Italian
and Spanish debt is that it is moderate," Bernanke said. Serious concerns about
Italy's ability to remain in the euro would have broader, more unpredictable and
more concerning effects on global stock and bond markets as this would put more
pressure on banks than direct losses from Italian debt holdings, he said.
Bernanke gave his support to Japanese Prime Minister Shinzo Abe's efforts to
revive the economy and end deflation. Bernanke gave his opinion to the
Committee, "I support their attempts to get rid of deflation." As a result of
the policies, the yen has lost value over the past few months and Bernanke's
comments signal he is not concerned about a so-called currency war.
The S&P/Case-Shiller 20-city home-price index released Tuesday posted a
non-seasonally adjusted 0.2% increase during December, following a 0.1% decline
in November and with a seasonal adjustment, home prices rose 0.9% during
December. Per the index, home-prices saw the largest year-over-year gain since
2006, with increases in 19 of 20 cities. From the same period in 2011, when
looking at longer-term trends, December's prices were up 6.8%. The only city
with a year-over-year decrease was New York, falling 0.5%. According to
Case-Shiller data, despite housing-market gains, home prices remain nearly 29%
below a bubble peak in 2006. David Blitzer, index committee chairman at S&P Dow
Jones Indices said, "Home prices ended 2012 with solid gains."
U.S. Commerce Department reported on Tuesday that during January, seasonally
adjusted new U.S. home sales jumped 15.6% to an annual rate of 437,000, marking
the highest pace of activity since July 2008. Additionally reported, seasonally
adjusted new U.S. home sales for December were revised up to 378,000 from an
initial read of 369,000. New home buyers in January steered toward less
expensive properties, moving median price of new homes to fall more than 9% to
$226,400 from $249,800. Compared to a year ago, new home sales are nearly 29%
higher. In the West, new home sales rose a whopping 45.3% and in the Northeast
new home sales rose 27.6%. The supply of new homes for sale fell to 4.1 months -
for the lowest level since early 2005 - at the current sales rate from 4.8
months during December.
The Conference Board reported on Tuesday that the consumer-confidence index rose
to 69.6 in February, striking the highest level in three months. From a prior
estimate of 58.6, reading for January was revised to 58.4. Higher payroll taxes
and fiscal uncertainty caused the index to plunge in January, as consumers
concerns soared. In February consumers' expectations rose to 73.8 from 59.9 in
January. Present situation confidence rose to 63.3 from 56.2. Lynn Franco,
economic indicators director at the Conference Board indicated that the shock
effect appears to have subsided this month.
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Feb 26, 2013