I am still trying to see the hidden meaning in why bonds are still rallying when inflation is growing and recessionary indications, according to what Bernanke said this morning, do not point to a recession happening, but rather a slowing economy (Limpflation versus Stagflation).
“We currently see the economy as continuing to grow, but growing at a relatively slow pace, particularly in the first half of this year,” Mr. Bernanke told the House Budget Committee, acknowledging that conditions are worse this year than in the “reasonably good” second half of 2007. (NY Times)
The chairman insisted that despite valid concerns about the “slowing growth” of the economy, it remains “extraordinarily resilient,” fortified by diversity, a strong labor force, excellent technology and a “liquid financial market that is in the process of trying to repair itself.”
So, in one speech he downplays inflation due to recessionary risks, then in another he claims recession isn't really an issue. He again downplays inflation stating that inflationary pressures should ease this year and next, as long as the public’s confidence in the Fed is not shaken.
That's a big IF!
I guess a devalued dollar doesn't matter either. Maybe he should run for President. But wait, he did reiterate his last speech's point...
“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”
That quote has been translated as more rate cuts even though we don't necessarily need them. Since the Fed loves to throw money, even if fake, at the problems, we can expect these rate cuts to occur. If for no other reason, the Fed must cut rates just so the DOW doesn't drop to 8,000!!
He does point out what many in the RE.net community, including myself, have talked about for a while and that is that the housing and mortgage mess is far from over...
“Our expectation is that delinquencies will go higher and that there will be ongoing losses in the subprime area,” he said. Asked to put a dollar figure on total losses, he said, “I see so far about $100 billion, but it certainly could be several multiples of that as we go forward and the delinquency rates and foreclosure rates rise.”
So, there you have it. Despite a weakening economy, Big Ben doesn't see a recession and believes since the American public loves him, we won't see inflation either. No wonder people keep buying bonds.
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