Bernanke to confront his critics as US economic recovery stutters once again
Wednesday 27 April 2011
Weakening economic growth and sliding house prices in the world's largest economy form the backdrop to the first-ever press conference by a Federal Reserve chairman, to be held after the US central bank makes its latest interest rate decision today.
Ben Bernanke, stung by public criticism of the Fed's programme of quantitative easing, will spend 45 minutes fielding questions from journalists on the outlook for monetary policy, with financial markets sure to be hanging on his every word.
A slew of disappointing data has led economists to lower their forecasts for US GDP growth since the Fed last met in March, but traders still expect Mr Bernanke to stick to the current policy of wrapping up quantitative easing by the end of June. Last November, the bank said it would pump $600bn of newly created money into financial markets, buying US government debt in the hope of bringing down interest rates for home buyers and businesses.
The Fed's federal open market committee began a two-day meeting yesterday to discuss the bank's latest internal economic forecasts and the questions of whether, when and how to begin tightening monetary policy.
The gathering came as the latest US housing market data showed prices fell by an average of 3.3 per cent across the country in February from the same month in 2010. That fall, as measured by the Case-Shiller index, was the biggest since November 2009. All but one of the 20 metropolitan areas covered by the index are now showing year-on-year price declines, because of a glut of foreclosed homes on the market.
There was some positive economic data yesterday, though, in the Conference Board's consumer confidence survey. That index rose to 65.4 from a revised 63.8 in March, better than the 65.0 expected by Wall Street, and consumers reported improved impressions of current economic conditions for the seventh straight month.
US GDP figures for the first quarter are due out tomorrow morning and are expected to show economic growth having slowed to an annualised rate of 2.0 per cent, according to a consensus of forecasts that has been drifting lower in recent weeks. Disappointing housing market activity, exports and retail sales in the final month of the quarter have led to the expectation of a gloomier GDP outlook.
"The Fed will be pleased to see that the further rise in gasoline prices towards $3.90 a gallon does not appear to have put another dent in US consumer confidence or added to households' inflation expectations," said Paul Dales, senior US economist at Capital Economics. But he said the still-low confidence means consumption growth will "not be anywhere near enough to shift the economy into a higher gear".
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