Ben Bernanke Before the Joint Economic Committee (JEC) – He is Between a Rock and a Hard Spot

Ben Bernanke’s comments before the JEC indicates that the FED expects the housing market to continue to deteriorate and fears of inflation to continue. Personally, I think Alan Greenspan put Ben Bernanke in a no win situation. Text in bold is my emphasis. From Yahoo:

Federal Reserve Chairman Ben Bernanke said on Thursday the U.S. economy has remained resilient in the face of credit market strains but faces risks on both the growth and inflation fronts.

"Financial market volatility and strains have persisted," Bernanke told the congressional Joint Economic Committee. "In addition, further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity."

Policy-makers expect economic growth to slow "noticeably" in the fourth quarter of the year, the Fed chairman warned, saying a housing downturn was likely to intensify and that consumer and business spending could slow.

However, he said the Fed expects growth to strengthen next year as the impact of tighter credit and the housing slump wane.

While some analysts agreed, others saw the Fed chief's testimony as finely balanced between concerns on growth and concerns over the potential inflation could quicken.

"They are pulled in two directions," said Christopher Low, chief economist for FTN Financial in New York. "They are worried about the economy. They are worried about inflation." "Bernanke is in a box and it is getting smaller."

Bernanke told lawmakers that when Fed policy-makers met on October 30-31, they saw both downside risks to economic growth and "important upside risks" to inflation, citing oil and other commodity price increases and a drop in the dollar's value.

"These factors were likely to increase overall inflation in the short run and, should inflation expectations become unmoored, had the potential to boost inflation in the longer run as well," he said. Answering questions before the committee, he said it could be "very costly" if the Fed had to beat back a rise in inflation. (Sounds like killing the economy Paul Volcker style.)

However, he also said delinquencies among holders of subprime mortgages were likely to rise. A sharp rise in home foreclosures could weaken the already struggling housing market and damage the broader economy, he warned.