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September 20, 2007
Bernanke speaks (and other assorted news)
Chairman Bernanke gave testimony to Congress on the subprime situation today. Read it on the Fed's newly redesigned website. The only mention of monetary policy is at the end, and it includes nothing new, only some quotes from the press release Tuesday.
In other related news, initial jobless claims were down, reaching their lowest level since July 28. This suggests that the employment report may have been a blip. Employment is somewhat of a lagging indicator, so don't get too worked up and thinking that the threat is over. More trouble could still be to come. Nevertheless, we'll take good news when we can get it. The Index of Leading Indicators, however, was down slightly.
Meanwhile, a certain former Fed chairman is enjoying his time in the spotlight. It is hard to get used to seeing Alan Greenspan all over the place talking to the media candidly, but get used to it we will. (Reuters)
Asked in an interview on Bloomberg television whether the Fed's half-percentage-point rate cut on Tuesday had lowered the chances of a recession, Greenspan said: "I think so, but remember that we still have a problem out there, which is a large overhang of unsold newly constructed homes."
...
Greenspan said the chances for a recession in the United States were still "somewhat more" than 1 out of 3, despite the cut in the Fed's overnight federal funds rate to 4.75 percent, but cautioned it was hard to be more precise.
"We are often wrong but never in doubt on too many issues," he said.
Indeed.
We're watching history unfold here, folks. The unwinding of the subprime mess is without precedent. But the monetary policy action has parallels in the past. Will this episode be more like 1998 (heading of systemic risk, short lived easing and a return to previous levels in a year) or like 2001 (the beginning of a series of cuts and the re-inflation of a bubble)?
To apply the wisdom of Greenspan, someone who doesn't have some doubt stands a good chance of being wrong.
Posted by William Polley at September 20, 2007 9:48 AM
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Comments
what bothered me in the employment report is that payrolls showed a big drop in education employment and the household survey reported a big drop in teenage employment.
I suspect the way the calender worked out in August with the 31st on a Friday may have messed up the seasonal adjustment program because teachers reported back to school later than normal this year.
If so the markets are going to experience a massive shock from the next employment report.
This is not to deny that employment is weakening, but the drop in employment is out of line with other indicators.
Posted by: spencer at September 20, 2007 3:07 PM
I think I might have seen you post that thought on another blog, and I took note. You could be right. We shall see.
Posted by: William Polley at September 20, 2007 3:32 PM