Monday, December 7, 2009

Bernanke and headwinds

In a speech today, Chairman Bernanke argued that there were "formidable headwinds" that will moderate any recovery. After the euphoria of Friday, with unemployment falling to 10, the markets were slapped with a reality check from the Fed chief. Bonds reversed about half the decline from Friday.

The likelihood of a V-shaped recovery has declined. The chance that we will see a rise in rates from the Fed has diminished. The Fed chairman mentioned weak utilization, labor market, and a lack of lending as all contributing to these headwinds. Bernanke also stated that it was possible that inflation could go lower and there is no assurance that the "recovery will be self-sustaining".

This was a sobering set of comments as we start to close the year.

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