Federal Reserve Misses Q1 Forecast; Guides Lower for first half of 2008

Today Federal Reserve Chairman Ben Bernanke spoke in front of the United States Congress Joint Economic Committee to discuss the FOMC's First Quarter projections. In the text of his statement Bernanke blamed financial market turmoil for missing the Federal Open Market Committee's mid January expectations GDP. He further went on to say that over the first half of 2008 GDP is likely to remain flat and warned the economy may slightly contract. Looking out to the second half of 2008, Bernanke said the expectations for some stabilization in the housing collapse, gradually improving financial conditions and stimulative monetary and fiscal monetary policies should boost the economy into the end of the year. Bernanke warned that further unforeseen events in financial markets would force the Fed to downgrade the its GDP projections for the second half of 2008.

Below is an excerpt from Bernanke's prepared speech and a link to the full text in PDF format at the Joint Economic Committee's website:

To date, the recent liquidity measures implemented by the Federal Reserve seem to have
been helpful in addressing some of the strains in financial markets. Funding pressures on
primary dealers appear to have eased somewhat, and liquidity seems to have improved in several
markets, including–as noted earlier–the market for agency mortgage-backed securities. To the
extent that these measures improve market functioning, they will have favorable effects on the
ability and willingness to make credit available to the broader economy. More-liquid markets
also increase the efficacy of monetary policy, which in turn improves our ability to meet the
goals set for us by the Congress–namely, to promote maximum employment and price stability.

As you know, in response to the further weakening of economic conditions, the Federal
Reserve has continued to ease the stance of monetary policy. The FOMC reduced its target for
the federal funds rate by a total of 125 basis points in January and by an additional 75 basis
points at its March meeting, leaving the current target at 2-1/4 percent–3 percentage points
below its level last summer. As the Committee noted in its most recent post-meeting statement,
we anticipate that these actions, together with the steps we have taken to foster market liquidity,
will help to promote growth over time and to mitigate the risks to economic activity.

http://www.house.gov/jec/news/2008/April/Bernanke%20Statement%204-2-08.pdf