Who Twisted Bernanke's Arms?

For a very long time, US Federal Reserve's chief, Ben Bernanke, had never admitted the likelihood of US heading into a recession since the sub-prime crisis exploded, despite average American households already feeling the recession heat with crashing home prices, job losses and downward spiralling consumer confidence. Bernanke had always uphold his somewhat "miraculous' belief that the worst was an economic soft landing (that means still minor growth) . Technically speaking, a recession would only become official upon two consecutive quarterly GDP growth occur. With the US general election forth coming, it's perhaps not difficult to understand why Federal Reserve would take such a stand, and refused to come to a reality standpoint....

Recent Federal Reserve's aggressive actions in bailing out US financial institutions and covering the credit shortfall would further otherwise that the situation has become alarming and needs immediate remedies to salvage the potential wreckage.

Yesterday, Bernanke had finally acknowledged that a US recession is possible because homebuilding, employment and consumer spending will deteriorate. Was he arm twisted (to say so in order to set the right expectation) or perhaps finally coming to a realization from his dream?

As quoted by Bernanke (on Bloomberg), it now appears likely that real GDP will not grow much, if at all, over 1H08 and could even contract slightly. However, he added that Fed's interest rate cuts and liquidity provisions should spur economic growth "over time" and he expects improvement in 2H08, but the outlook is highly uncertain and attended by downside risks. In addition, inflation is still a source of concern as he pointed to February's 3.4% year-on-year increase in the price index for personal consumption expenditures.

Finally, Bernanke also emphasized the unusual nature of rescue efforts for Bear Stearns, saying the central bank's financing of the sale to avoid bankruptcy was a "one-time event." Bernanke said the Fed did not intend to offer a safety net for every firm that runs into trouble.

Oops...for those who chased up the stocks on Wall Street with optimisms on Tuesday (the Dow rose more than 3% in one day), best to review your policies again!

Personally, I would prefer to see the worst possible events to unfold in a quicker mode, compared to the current "slow-death" syndrome. When that happens, we can then at least look forward to a brighter future and a better Christmas in 2008!