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22 Jul, 2010 12:05

Bernanke’s ‘unusually uncertain’ casts pall on U.S. but not Russia

Ben Bernanke’s address to the US Congress sent a mild tremor through global markets with its ‘unusually uncertain’ assessment of the world’s largest economy and gloomy outlook on employment.

Amidst increasing doubts about the outlook for the global economy, US Fed chairman Ben Bernanke pulled no punches in his address to Congress about the outlook for the world’s largest economy. Although noting that consumer spending grew at 2-2.5% over the first half of the year, he pointed to the massive drag on sentiment housing market carnage is continuing to wreak, and said that growth simply wasn’t strong enough to look like bringing a rebound in employment, which was feeding back into weak consumer sentiment and spending.

“An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects. After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers’ employment and earnings prospects.”

The Fed Chairman reiterated his June comments that the ‘stimulative’ monetary policy was likely to be required for an ‘extended period’ but focused largely on the winding back of liquidity support measures and stimulus measures introduced at the height of the crisis. The candid assessment of the outlook, and long term focus, despite recent employment and housing data, was warmly applauded by Evgenny Nadorshin, Chief economist at Trust Bank.

“I Liked it, in fact. He was frank. He was frank with the members of the senate committee, frank with the market. He was not too optimistic, as many expected. He didn’t promise the impossible. He told that Federal Reserve was more concentrated on limiting liquidity or taking stimulus out of the economy, because it’s the major concern for months for the Federal Reserve. He didn’t promise to implement any stimulus measures, to push economic growth further, simply because a couple of months did not provide good enough statistic to cheer up the markets."

The immediate implication for Russia was considered to be minimal, beyond a minor tremor in the markets, with Nadorshin adding that the current Russian economic outlook is arguably more comforting, with the economy getting traction on a rebound.

“I would say that the effect of this speech of Bernanke and these estimates is not that important for Russia, simply because it does not relate too much to the Russian economy currently. Our major indicator is the oil price. That’s high, so we are comfortable with that. Irrespective of what the Fed is doing, until oil prices fall we are still comfortable. You can see on Russian Eurobond market at this time – we are not going down. Russian investors are well comfortable with the situation and what Bernanke says. Definitely the Fed is the major player amongst central banks worldwide. If the Fed changes something seriously and drastically, this will affect Russia, but not this time.”