Fed Chairman Ben Bernanke presented before the House nowadays and will seem in the Senate tomorrow. He spoke of the deteriorating profitable conditions in the United States in terms of slowing GDP growth and increasing unemployment. The increase in inflation from rising oil and food prices was plus discussed.

However, Dr. Bernanke plus clearly indicated that the slowing economy was the more instant concern and that these inflationary pressures would not prevent the Fed from lowering interest rates further to deal with the situation. He mentioned that he believed inflation would moderate as the economy slowed.

Part of the problem with recent cuts in the Fed Funds Rate has been the mixed messages that have accompanied them. Several Fed officials have spoken with both hawkish statements about inflation and dovish comments about the slowing domestic economy. that has led to confusion about the Fed’s intent and limited the effectiveness of the cuts.

Dr. Bernanke’s testimony, along with

Vice Chairman Donald Kohn’s speech yesterday, has sent a consistent and clear notice that higher inflation will not stop the Fed from lowering rates further. that should give the markets consolation that the Fed will continue to inject liquidity in order to cushion the slowdown.

However, the rate cuts will take day to work its way into the system. Since most of the easing has been recent, we will not be able to judge its effectiveness. In the meanwhile, market volatility will continue.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve’s affect on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.

Original post by Douglas S. Roberts

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