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Federal Reserve Chairman Ben Bernanke appeared before the Senate Banking Committee yesterday. These excerpts of his prepared testimony make a compelling case that the U.S. economy is in a ‘Goldilocks’ phase of healthy growth and low inflation:
Real activity in the United States expanded at a solid pace in 2006, although the pattern of growth was uneven. After a first-quarter rebound from weakness associated with the effects of the hurricanes that ravaged the Gulf Coast the previous summer, output growth moderated somewhat on average over the remainder of 2006. Real gross domestic product (GDP) is currently estimated to have increased at an annual rate of about 2-3/4 percent in the second half of the year. As we anticipated in our July report, the U.S. economy appears to be making a transition from the rapid rate of expansion experienced over the preceding several years to a more sustainable average pace of growth. The principal source of the ongoing moderation has been a substantial cooling in the housing market, which has led to a marked slowdown in the pace of residential construction. However, the weakness in housing market activity and the slower appreciation of house prices do not seem to have spilled over to any significant extent to other sectors of the economy. Consumer spending has continued to expand at a solid rate, and the demand for labor has remained strong. On average, about 165,000 jobs per month have been added to nonfarm payrolls over the past six months, and the unemployment rate, at 4.6 percent in January, remains low. Inflation pressures appear to have abated somewhat following a run-up during the first half of 2006. Overall inflation has fallen, in large part as a result of declines in the price of crude oil. Readings on core inflation--that is, inflation excluding the prices of food and energy--have improved modestly in recent months. Nevertheless, the core inflation rate remains somewhat elevated. |
Democratic candidates vying for the presidency feel compelled to outdo each other in depicting a gloomy economic scenario, and a middle class under siege. This could backfire, as did Al Gore’s incomprehensible refusal in 2000 to acknowledge that the economy (under his own administration!) was relatively healthy.
Trouble is, Dems eager to attract union and other activist support may develop a narrative of the economy that most middle-class voters won’t recognize. In this regard, as NYT columnist David Brooks recently noted, a centrist group called Third Way has issued an interesting report seeking to discredit three ‘neopopulist’ myths -- that the middle class is failing, that America is declining and that we’re living in an age of corporate omnipotence. Its bottom line is that by many measures, America’s middle class is thriving, and that it’s a shame to be in constant denial, because it cedes the optimistic high ground to conservatives, and imperils the policies (e.g. free trade) that are fueling the nation’s prosperity.