Understanding the Economic trajectory of Bernanke Speech

After the dis appointment of Jackson Hole Speech, generally all presumed not much of Action and talks from the FED and particularly Dr Bernanake.But it was at Minneosta, Minneapolis speech is very interesting and explanatory of FED actions.
I shall only draw the important lines from the speech, in chronologically.
The Outlook for US Economic Growth :
The Review pertains to last 3 years. Observations : ' recession was even deeper and the recovery weaker than we had previously thought; indeed, aggregate output in the United States still has not returned to the level that it had attained before the crisis' 'to achieve sustained reductions in the unemployment rate, which has recently been fluctuating a bit above 9 percent. real gross domestic product (GDP) estimated to have increased at an annual rate of less than 1 percent, on average, weakness can be attributed to temporary run-ups earlier this year in the prices of oil and other commodities

  the incoming data suggest that other, more persistent factors also have been holding back the recovery greater downside risks to the economic outlook   unusual weakness in household spending.


He then dealt with the business sector and observes that, Manufacturing production has risen nearly 15 percent since its trough, driven importantly by growth in exports. Indeed, the U.S. trade deficit has narrowed substantially  Business investment in equipment and software has also continued to expand

Why has this recovery been so slow and erratic? he asks 

Bernanke sees that recession as cyclical feature of the capitalist economies and expect that, ' These restorative forces are at work today' but finds recession as Global and Severe and blames it to the 'deep slump in the housing market and a historic financial crisis'. and blames,' have acted to slow the natural recovery process.

The Outlook for Inflation:

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   Prices of many commodities, notably oil, increased sharply earlier this year 

   over the first half of this year, the price index for personal consumption expenditures rose at an annual rate of about 3-1/2 percent, compared with an average of less than 1-1/2 percent over the preceding two years

However, he adds that,  inflation is expected to moderate in the coming quarters as these transitory influences wane. and thereafter adds that,  subdued unit labor costs should be an important restraining influence on inflation.

Monetary Policy: 

 the statement following the meeting indicated that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

Conclusion: 

Thus I do not expect the long-run growth potential of the U.S. economy to be materially affected by the financial crisis and the recession if--and I stress if--our country takes the necessary steps to secure that outcome. 

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Ben Bernanke seems to have accepted to the fact that ' Anti Cyclical Monitory' policies have failed to stimulate the Affected Sectors, viz housing market and financials, but loose policies have inflated the commodities and restrained the ' restorative forces' from fully recovering the economy.

Now, Fed expects that ' rate of Inflation' to come down and not the Inflation. However, Mr Bernanke expects that, ' The Committee also continues to anticipate that inflation will moderate over time, to a rate at or below the 2 percent or a bit less' and now, asserts that, '  Economic policy makers face a range of difficult decisions, and every household and business must cope with the stresses and uncertainties that our current situation presents ' 

So, Now we are back to square one. With Low interest rates till Mid-2013 and Inflation remaining unabated and recovery painfully sluggish. 

The developing economies like India, may now possibly have baked  High Interest rates, Higher Prices and now, slower recovery than anticipated. 

RE- SET

The Concept of single paced growth world over, now horizon. This upcoming times may still induce newer problems. More so, for countries like India, who may find pricing mis-matches in Input costs. 

The European Debt and austerity measures may find contracting economies as estoppal on export led growth and fewer employment opportunities and outsourcing, coupled by capital constrains.