The stock market is higher after testimony by Federal Reserve chairman Ben Bernanke before Congress. In his testimony, Mr. Bernanke stated that record-low interest rates are still needed to ensure that the US economic recovery will last. Mr. Bernanke struck a confident tone that the economic recovery will endure but he also sought to damp down expectations about a vigorous recovery.
The numbers seem to bear out Mr. Bernanke’s caution. Yesterday, the Conference Board reported that its Consumer Confidence Index fell almost 11 points to 46 in February, its lowest level since April 2009. At 46, the index is a long way from the 90 reading that economists generally view as depicting healthy consumer attitudes.
The moderate economic growth the Federal Reserve expects will lead to only a slow decline in the nation’s double-digit unemployment rate, so interest rates will need to stay low to help with the high unemployment rate. In addition, the nation’s housing market is still in dire need of help. Sales of new homes in January plunged to a record low, dropping by 11.2% to only 309,000 units. This data underscores the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.
In his testimony, Mr. Bernanke offered no clues about the timing of any increase in the key federal funds interest rate. This rate is the benchmark from which both consumer and business loans are based. Many economists think such a move is months away and some even think such a move may not occur for a few years. It also remains to be seen whether the Federal Reserve can end its program of ‘quantitative easing’ as scheduled in March without disrupting the financial markets.
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