Wednesday, February 29, 2012

Bernanke says: “Expect only temporary rise in gas prices”

Today’s trip for Bernanke to the Hill was to tell congress that while we have some positive signs in the economy, it’s only “Uneven and Modest Growth”.

As everyone has seen and felt the gas prices are creeping higher and higher, Bernanke stated he expects this to be only temporary and that outlook for inflation is subdued based upon the persistent downside of economic risk.

The FOMC says “Labor Market is the key to recovery” and that can be seen with the current lack of growth in the housing market, the housing affordability index is lower now than ever before however home buyers face:

3 issues potential home buyer face
• Amount of down payment
• Lack of good credit history
• Concerns about job prospects

With the main item being job prospects, while unemployment is down the job market is far from normal and there is no expectation of a big drop in unemployment.

The European Union has many fiscal and financial challenges that remain, and these items will take some time to sort out, all this combined with the wranglings with Iran’s nuclear ambitions in the Middle East, the United States bond market looks to be the safest place for investors to park their money, even though the returns are small.

Therefore with given the persistent downside of economic risk and subdued inflation outlook, conditions for the Fed’s extremely low funds rate looks to last into 2014.

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