It was a busy week for Fedspeak. Fed Reserve Chairman Ben Bernanke presented the FOMCs forecast in his semiannual testimony to the House Financial Services Committee regarding the economys health and overview of monetary policy. He emphasized the downside risks to growth and made it implicitly clear of the 99.99% chance the FOMC will cut rates at its March 18th meeting. Mr. Bernanke never came out and mentioned the R word during the testimony, but he did note the concerns caused by weakening consumer spending and financial market stress as well as the inflationary potential of energy prices and a weak dollar.
Mr. Bernanke presented some ideas (subscription required) that are meant to curtail deceptive mortgage practices. One key component of the proposal is to prohibit high-priced mortgages without giving due regard to the homeowners ability to pay back the loan, as well as require lenders to build escrow accounts for property taxes and hazard insurance. Other Fed speakers out on the circuit included Vice Chairman Donald Kohn, Atlanta Fed President Dennis Lockhart as well as Eric Rosengren (Boston Fed President) and Frederic Mishkin (Fed Governor) at the U.S. Monetary Policy Forum. Most of their comments bordered on the dovish side, emphasizing their concerns about the housing markets implosion and what steps need to be taken (read between the lines: Cut interest rates) in order to right the ship.
In a Wall Street Journal interview, Treasury Secretary Henry Paulson staked out the Bush administrations market-based plans to lessen the likelihood of home foreclosures. During the interview, however, Mr. Paulson blasted ideas being floated by some lawmakers and private economists that would allow the government to directly buy bad mortgages or foreclosed properties and that would even allow bankruptcy judges to alter mortgage terms. See here (subscription required) for an example of which Mr. Paulson is none too fond.
As for the week in data, the revised fourth quarter 2007 estimate for real GDP growth was not really revised, remaining at 0.6 percent. This morning we saw that consumers appear to be under pressure with real spending unchanged for the second month in a row and consumer confidence index dropped to its lowest point since the 1990-91 recession. Nonetheless, people are turning to unconventional (subscription required), though some might say reckless, ways to fund their consumption. Home sales and prices continued their descent, but no real surprise there. Finally, indexes from Chicago and the Kansas City and Richmond Fed districts show manufacturers are pretty pessimistic about the economy.