Fed Chairman Ben Bernanke Tells Congress "It Gets Worse"
But as Reuters reported, the head Fed honcho did say the United States Central Bank was inching toward a boost via round three of bond purchases.
Investors in the global market were hoping for good news from Bernanke, but instead he pointed to tightened restrictions as a result of Europe's debt crisis as an obstacle to U.S. recovery.
Citing disappointing jobs creation and wariness surrounding Europe's banks, Bernanke stuck with his June wait-and-see message, essentially saying the Fed would only act "if needed." From Reuters:
"Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to economic growth, the committee made clear at its June meeting that it is prepared to take further action," Bernanke said in his testimony on the Fed's semi-annual monetary policy report.
U.S. stocks prices slipped and the dollar hit session highs against the euro. Prices of Treasury securities trimmed losses.
"The market was preparing for some signal of imminent policy action from the Fed and they certainly did not get that," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "Clearly he left QE3 on the table, but there was no step closer to imminent action."
It's a rough week for the economy. Monday brought reports of Americans spending less in retail for a third straight month, prompting economists to downgrade growth projections for this quarter, according to Bloomberg Businessweek:
Spending in June fell in nearly every major category — from autos, furniture and appliances to building, garden supplies and department stores. Overall, retail sales slid 0.5 percent from May to June, the Commerce Department said.
Retail sales hadn't fallen for three straight months since the fall of 2008, at the height of the financial crisis.
The weak U.S. spending figures were released on the same day that the International Monetary Fund slightly lowered its outlook for global growth over the next two years.
That's right—just yesterday, the IMF warned lawmakers they needed to step it up in bolstering the economy, reducing its growth forecast to just 3.5 percent expansion this year. From the Wall Street Journal:
The IMF’s outlook would be worse if not for its assumption of strong action from policy makers in Europe and the U.S., who have failed to move quickly and decisively over the past two years.
It warned policy makers of the dangers posed by the status quo, as market pressures grow, global trade slows and businesses in both advanced and emerging economies brace for a new round of turmoil.
“The IMF has played it safe and still their report is disquieting,” said Simon Evenett, an economist at the University of St. Gallen in Switzerland. “You don’t get shot for making cheery assumptions. Lots must fall into place for the IMF’s forecasts to be believed.”
Fund economists, then, might be especially disheartened by Bernanke's hesitation in front of Congress.
Meanwhile, Goldman Sachs fell back on the global economic crisis as well when it reported a drop in profits of nearly $1 billion. According to the BBC, bank head Lloyd Blankfein added to the economic hand-wringing Tuesday morning: “During the second quarter, market conditions deteriorated and activity levels for both corporate and investing clients were lower given continued instability in Europe and concerns about global growth."
Read more of Neon Tommy's economic coverage here.