can we trust berney anymore ? was he given the job with bush and cos. conditions ? only time will tell but fwiw, i found the following bloomberg report very interesting. apart from dodging questions .... mmm !
NOTE this paragraph in the report.... If Bernanke proves to be right in his forecast, Harris said, it would be ``the first time in history'' that the Fed stopped inflation ``without imposing pain on the economy.''
the report in full
Bernanke Deepens Economists' Divide on Fed Rate Path (Update1) July 21 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke's congressional testimony accentuated a split among economists about where interest rates are headed after next month.
Bernanke forecast slower economic growth and an easing of inflation, which a government report this week showed rose for a sixth consecutive month. In his testimony, the chairman, 52, signaled he's open to suspending the Fed's two-year campaign to increase rates; minutes of the Fed's June policy meeting released yesterday showed officials unsure of their next move.
Goldman, Sachs Group Inc. expects the Fed to raise borrowing costs one more time in August, to 5.5 percent, and then stop. ``I'm very comfortable with the growth-deceleration story,'' said Jan Hatzius, the firm's New York-based chief U.S. economist. By the end of next year, the firm expects the Fed to cut the benchmark rate to 4 percent.
At Lehman Brothers Holdings Inc. in New York, chief U.S. economist Ethan Harris doesn't buy it. ``The Fed has a very optimistic view about inflation, and I think they will find out they are wrong and will have to tighten more,'' he said. Lehman estimates the central bank will push its benchmark rate to 5.75 percent by year's end, from 5.25 percent currently.
If Bernanke proves to be right in his forecast, Harris said, it would be ``the first time in history'' that the Fed stopped inflation ``without imposing pain on the economy.''
Dodging Questions
Bernanke, in his semi-annual report to Congress, dodged specific questions on the policy outlook. In doing so, he left economists to consider the Fed's forecasts against recent government reports on growth and inflation.
Futures traders have swung in two days from being almost certain of an increase to betting one is unlikely. They saw a 34 percent chance of such a move as of 9:17 a.m. New York time, compared with 47 percent yesterday, based on the price of securities tied to the fed funds rate on the Chicago Board of Trade. At one point on July 19, traders put the likelihood of an August increase at 90 percent.
``It does come down to forecasting,'' said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, whose firm expects the Fed to lift rates a quarter point at each of the next three meetings. ``Our view is a sharp slowdown will not occur.''
Even economists who expect the central bank to pause after another increase in August said the forecast presented by Fed policy makers was too pessimistic in its outlook for economic expansion. Growth must slow to an annual rate of 2.5 percent to 2.75 percent in the second half for the Fed's math to work, said Macroeconomic Advisers LLC.
`A Housing-Led Slowdown'
``The evidence is clearly pointing to a housing-led slowdown in growth, though we do not know whether it will be as extensive as the FOMC apparently expects,'' said Brian Sack, senior economist at Macroeconomic Advisers in Washington and who formerly worked at the Fed.
The firm, whose vice chairman is former Fed Governor Laurence Meyer, expects the Federal Open Market Committee to pause at 5.5 percent after a final increase in August.
``There is even greater uncertainty surrounding the committee's inflation forecast,'' Sack said. ``The committee expects core inflation to moderate, but the data have not given much confirmation to that forecast.''
Fed officials expect inflation to rise at a 2.25 to 2.5 percent rate, measured by the change in the fourth quarter rate of the personal consumption expenditures price index, minus food and energy. Any additional seepage of oil prices, which hit a record high of $73.08 July 14, into other goods and services might threaten that forecast, economists said.
`More Upside Risk'
``We see more upside risk than downside risk'' to inflation, said Conrad Dequadros, senior economist at Bear Stearns Cos. in New York, which expects the Fed to leave rates unchanged in August and then raise them a quarter-point in September.
Fed officials estimate real gross domestic product growth of 3.25 percent to 3.5 percent this year. Unemployment should average 4.75 to 5 percent in the final quarter, they said, versus an average rate of 4.6 percent for the past three months.
The biggest unknown on Wall Street and at the central bank is the impact a cooling housing market will have on consumer confidence and spending.
Household savings from income turned negative in April 2005, leaving mortgage financing to power consumer spending. Freddie Mac, the nation's second-largest mortgage purchaser, estimates a record $244 billion was cashed out of home equity in 2005.
The Fed reckons that a third or a quarter of cash taken from home loans is used for personal spending. Cash-out refinancing could slow to $169 billion this year, according to Freddie Mac estimates.
``Bernanke is absolutely right,'' said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina, who expects the Fed to leave rates unchanged in August. ``The slowing in housing is resulting in a slowing in consumer spending. People have tapped rising equity values in their homes. They are not able to do that anymore.''
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