The Chairman of the Federal Reserve Mr. Bernanke speaks!

The Chairman of the Federal Reserve Ben Bernanke was highly visible this week in giving lectures and testifying before the U.S. Congress. He focused on the reasons for the financial crisis of 2007-08 and the present state of the economy, but kept silent about prospects for further monetary easing.

Speaking to students of The George Washington University, where he delivered two lectures, Mr. Bernanke said that consumer spending is still too weak at present to sustain a healthy rate of economic growth. Speaking about the fact that debt and consumption patterns are still way below the rates at which they were before the crisis he said that the U.S economy at present did not have a source of demand to keep the economy growing.

Consumer spending in the U.S. accounts for 70% of its total output and it has been noted that the economy grew at just under 2% in the first few months of 2012 which is down from 3% in the last quarter of 2011. With an unemployment rate uncomfortably high at 8.3% and the risk of a domino effect from the European crisis weaker, yet still a possibility Mr. Bernanke felt that the economy was still not out of the woods.

Mr. Bernanke’s lecture shed light on the way the housing bubble and other failures led to the financial crisis of 2007-08 that resulted in the present recession, and accepted that regulators including the central bank had not done a good job of monitoring the economy, especially with regards to esoteric Wall Street securities and mortgage related activities, by failing to use their authorities and powers effectively.

The Fed under Mr. Bernanke had slashed short term borrowing costs to zero and had promised to leave them at that rate till 2014, and bought 2.3 billion dollars worth of Treasury bonds and mortgage debt as a response to the recession. It is felt my analysts that a third round of bond purchases or quantitative easing may not be in the cards in view of the recent improvements in the economy.

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