Translating Ben Bernanke

The Fed Chair says economic growth in the U.S. is likely to "slow noticeably." But what does that mean?


Andrew Leonard
November 8, 2007 9:46PM (UTC)

Ben Bernanke gave Congress an update on the U.S. economy Thursday morning. As part of his roundup, he predicted that "that the growth of economic activity would slow noticeably in the fourth quarter from its third-quarter rate."

The Wall Street Journal and Financial Times immediately made Bernanke's testimony their lead story. But a casual bystander could be excused for wondering what exactly "slow noticeably" signifies. Third quarter GDP growth was 3.9 percent. Would we notice 2.9 percent growth in the next quarter? Zero percent growth? An out-and-out contraction?

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Parsing the meaning of the Fed Chair's every nuance can be tricky. So let's look at some of the other things Bernanke said in his address to Congress, translate them in accordance with what we know about current economic circumstances, and see if that gives us any hints. All italics are mine.

Since I last appeared before this Committee in March, the U.S. economy has performed reasonably well. On preliminary estimates, real gross domestic product (GDP) grew at an average pace of nearly 4 percent over the second and third quarters despite the ongoing correction in the housing market.

Translation: ongoing "correction" equals worst housing bust in the United States in 20 years.

Core inflation has improved modestly, although recent increases in energy prices will likely lead overall inflation to rise for a time.

Translation: "recent increases in energy prices" equals the price of a barrel of oil is on the verge of hitting an all-time, adjusted-for-inflation record, and the chief economist of the International Energy Agency told Time Magazine this week that "we are headed toward really bad days."

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However, the economic outlook has been importantly affected by recent developments in financial markets, which have come under significant pressure in the past few months.

Translation: "recent developments in financial markets" equals massive multi-billion dollar write-downs by Wall Street's bluest blue chips. One estimate released this week predicted total losses attributable to the credit crisis of between 250 and 500 billion dollars.

The continuing increase in the rate of serious delinquencies for [subprime] mortgages reflects in part a decline in underwriting standards in recent years as well as softening house prices. Delinquencies on these mortgages are likely to rise further in coming quarters as a sizable number of recent-vintage subprime loans experience their first interest rate resets.

Translation: "A sizable number of recent-vintage subprime loans" equals almost half a million adjustable rate subprime mortgages will experience their first interest rate hike in the next quarter.

In part because of the reduced availability of mortgage credit, the contraction in housing-related activity seemed likely to intensify.

Translation: "Likely to intensify" equals the worst housing bust in 20 years hasn't hit bottom.

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So, given these parameters, what do you think "slow noticeably" might mean?


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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