Vital Signs: Bernanke Speaks to Congress

On deck: Home prices, consumer confidence, existing home sales, three regional business surveys, revised GDP data, and testimony by Bernanke

Federal Reserve Chairman Ben Bernanke takes center stage this week, as he goes up to Capitol Hill to present the Fed’s twice-yearly Monetary Policy Report to the Congress. Current circumstances are starkly different from those surrounding the Fed’s last report in July. Back then, the Fed projected the economy would grow between 1% and 1.6% in 2008 and between 2% and 2.8% in 2009, while it was concerned about energy-fueled inflation. The numbers Bernanke will present to the Senate Banking Committee on Tuesday will show the economy contracted about 0.5% last year, along with a projected decline between 0.5% and 1.3% this year. And now the Fed’s worry is deflation, not inflation.

A cornerstone of Bernanke’s testimony will most likely be a review of the Fed’s various lending facilities, their objectives, and their effectiveness in restoring more normal credit-market functioning. One of Bernanke’s major tasks right now is to communicate to lawmakers and investors how all these pieces of unconventional measures fit together into a unified monetary policy, and how they will work to achieve the Fed’s goals to support the credit markets and the economy. Bernanke has already laid out a broad outline of the Fed’s strategy in speeches on Jan. 13 and again before the House Financial Services Committee on Feb. 10. However, these programs continue to change in size and scope.

The markets will be especially interested in the expansion of the Fed’s Term Asset-backed securities Loan Facility (TALF), from $200 billion to up to $1 trillion. The TALF, not yet operational, was originally set up to buy high-grade securities backed by credit card loans, auto loans, and loans to small businesses and students. The intent is to revive the securitization of these loans and provide more credit to these key sectors. The expansion will include private-label residential mortgage-backed and commercial mortgage-backed securities (MBS). Those purchases will be in addition to another program, already in progress, to buy $600 billion in debt and MBS from government agencies--a strategy aimed at kick-starting mortgage securitization and reducing mortgage rates.

In addition to a run down of the Fed’s current efforts, the markets will also be interested in Bernanke’s thinking on purchases of longer-term Treasury securities. The Fed chief raised this possibility a few weeks ago, much to the bond market’s interest, but he has been mum on the subject in recent weeks.

Finally, deflation will also be a key topic. Minutes of the Fed’s Jan. 27-28 meeting showed growing concern that inflation could fall too low. Many private economists believe deflation is a real possibility in the coming year, given the sizable amount of slack that is expected to develop in the economy. The Fed has already responded by issuing a "longer run" projection of inflation in its latest minutes. That projection is ostensibly an inflation target that is meant to anchor inflation expectations, and convince the markets that the Fed will do what is necessary to achieve that target and avoid deflation.

Here’s the weekly economic calendar, from Action Economics:

Top Economic Reports
Reports Date Time For Median Estimate Last Period
Consumer Confidence Tuesday, Feb. 24 10:00 a.m. February 36.9 37.7
Existing Home Sales (Millions) Wednesday, Feb. 25 10:00 a.m. January 4.795 4.740
Durable Goods Orders Wednesday, Feb. 25 8:30 a.m. January -2.1% -3.0%
New Home Sales (Millions) Wednesday, Feb. 25 10:00 a.m. January 0.331 0.331
GDP (Preliminary) Friday, Feb. 27 8:30 a.m. Q4 -5.1% -3.8%
GDP Chain Price Index (Preliminary) Friday, Feb. 27 8:30 a.m. Q4 -0.1% -0.1%
Chicago Purchasing Managers Index Friday, Feb. 27 10:00 a.m. February 34.0 33.3
Consumer Sentiment Index (Final) Friday, Feb. 27 9:55 a.m. February 58.0 56.2
Other Reports and Events
Reports/ Events Date Time For
Dallas Fed Survey Monday, Feb. 23 10:30 a.m. February
ICSC-UBS Store Sales Tuesday, Feb. 24 7:45 a.m. Feb. 15-21
Johnson Redbook Weekly Store Sales Tuesday, Feb. 24 8:55 a.m. Feb. 15-21
S&P Case Shiller Home Price Index Tuesday, Feb. 24 9:00 a.m. December
FHFA Home Price Index Tuesday, Feb. 24 10:00 a.m. December
Richmond Fed Survey Tuesday, Feb. 24 10:00 a.m. February
TESTIMONY: Fed Chairman Bernanke Tuesday, Feb. 24 10:00 a.m.
Mortgage Applications Wednesday, Feb. 25 7:00 a.m. Feb. 15-21
Initial Unemployment Claims Thursday, Feb. 26 8:30 a.m. Feb. 15-21
SPEECH: San Fran. Fed President Yellen Friday, Feb. 27 10:00 a.m.
SPEECH: St. Louis Fed President Bullard Friday, Feb. 27 10:00 a.m.
Earnings Calendar
Company Report Date
Developers Diversified Realty Monday, Feb. 23
Nordstrom Monday, Feb. 23
DTE Energy Monday, Feb. 23
Campbell Soup Monday, Feb. 23
Home Depot Tuesday, Feb. 24
Medco Health Solutions Tuesday, Feb. 24
Tenet Healthcare Tuesday, Feb. 24
Sempra Energy Tuesday, Feb. 24
Health Care REIT Tuesday, Feb. 24
Range Resources Tuesday, Feb. 24
Nabors Industries Tuesday, Feb. 24
Office Depot Tuesday, Feb. 24
Wynn Resorts Tuesday, Feb. 24
Target Tuesday, Feb. 24
PG&E Tuesday, Feb. 24
HJ Heinz Tuesday, Feb. 24
RadioShack Tuesday, Feb. 24
Vornado Realty Trust Tuesday, Feb. 24
Macy's Tuesday, Feb. 24
Centerpoint Energy Wednesday, Feb. 25
JM Smucker Wednesday, Feb. 25
RR Donnelley & Sons Wednesday, Feb. 25
Frontier Communications Wednesday, Feb. 25
TJX Wednesday, Feb. 25
Integrys Energy Group Wednesday, Feb. 25
Express Scripts Wednesday, Feb. 25
Fluor Wednesday, Feb. 25
Salesforce.com Wednesday, Feb. 25
Flowserve Wednesday, Feb. 25
Washington Post Wednesday, Feb. 25
CMS Energy Wednesday, Feb. 25
Ltd Brands Wednesday, Feb. 25
Dynegy Thursday, Feb. 26
Sears Holdings Thursday, Feb. 26
Iron Mountain Thursday, Feb. 26
ENSCO International Thursday, Feb. 26
American Tower Thursday, Feb. 26
NASDAQ OMX Group Thursday, Feb. 26
Novell Thursday, Feb. 26
Kohl's Thursday, Feb. 26
The Gap Thursday, Feb. 26
Southwestern Energy Thursday, Feb. 26
Autodesk Thursday, Feb. 26
Safeway Thursday, Feb. 26
El Paso Thursday, Feb. 26
Rowan Cos Thursday, Feb. 26
King Pharmaceuticals Thursday, Feb. 26
Public Storage Thursday, Feb. 26
Dell Thursday, Feb. 26
Leucadia National Friday, Feb. 27
American International Group Friday, Feb. 27
Brown-Forman Friday, Feb. 27
Nicor Friday, Feb. 27
Interpublic Group Friday, Feb. 27
Republic Services Friday, Feb. 27
Titanium Metals Friday, Feb. 27
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