Bernanke Somber, but Seems Cautiously Optimistic

Fed chief Bernanke is speaking on the economy to a a gathering of southern state governments. Given Bullard's concerns about deflation expressed last week, Bernanke's comments were anxiously awaited. They do not seem as worrisome as many had expected. He does not address monetary policy per se, but does seem to hold out the possibility that rising wages will help spur household demand and this coupled with rising demand from businesses should allow the economy to continue to expand at a moderate pace. At the same time, he recognizes the forces restraining the economy, among which he cited the efforts by state governments to reduce their combined $84 bln deficit.

The dollar remains offered in the post-ISM report activity. Bernanke's comments have had little impact in the foreign exchange, debt or equity markets. His prepared remarks seem to contain no new insight or policy clues. There is nothing in the ISM or in Bernanke's comments that suggest the Fed is or needs to be in a hurry to decide about additional credit easing measures. The FOMC meets next week, Aug 10. No change in policy is expected and only modest tweaks in the economic and inflation assessments.