No Indication of Fed Rate Hike
The US dollar pulled back from earlier gains vs. the yen and the euro. U.S. Federal Reserve Chairman Ben Bernanke gave no indication that the Fed would raise rates anytime soon. Bernanke testified before the Joint Economic Committee on Wednesday. Bernanke made no direct references to the Fed’s interest rate outlook which was disappointing to investors. Ten year treasury notes took a hit after Bernanke said that US economic expansion would remain moderate and a Fed survey showed that the US economy grew ‘somewhat’ during March. Bernanke told congress “The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period. If those conditions cease to hold and we anticipate changes in the outlook then of course we will respond to that.” Bernanke also told congress that inflation remains subdued and that long term inflation expectations are contained. Bernanke warned that the risk of economic contraction was “not negligible” and that growth is hampered by construction sector weakness and strained state and city budgets.
Bernanke Addresses Chinese Yuan
Bernanke said that layoffs are slowing and that employment ‘has turned up’ and many believe Bernanke’s remarks expressed caution about economic recovery in the world’s largest economy. Bernanke was asked whether the Chinese Yuan, which many believe is undervalued, helped spark the global recession and Bernanke said it was one of many causative factors. Regarding the Yuan Bernanke stated, “I think it would be good for the Chinese to allow more flexibility in their exchange rate. It would give them more autonomy in their monetary policy so they could address inflation and bubbles within their own economy.” Some legislators focused on consumer protection issues and while Bernanke admitted some mistakes he said that he is not in favor of the Fed having those added duties. Bernanke stated, “I can understand why some advocates would want to have a purely independent agency. While we have acknowledged being late on these issues, I do believe we should receive credit for a much better performance in recent years.”
Recovery ‘Broadening but Slow’ Says Fed
Fed presidents and officials will meet April 27-28 and have been debating how and when to withdraw various stimulus measures put in place to address the worst recession since the Great Depression. A rise in Fed rates is widely seen as positive for the dollar. The Fed’s Beige Book business survey says that the economic recovery is broadening but slow. The Fed report states, “Overall economic activity increased somewhat since the last report across all Federal Reserve Districts except St. Louis, which reported ’softened’ economic conditions.”
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