Bernanke Downbeat, Unclear on Stimulus; CPI Flat, but HMI Up

The chairman of the Federal Reserve was on Capitol Hill on Tuesday, testifying as part of his "Semiannual Monetary Policy Report to the Congress," and his assessment of the economy, at least for the short term, wasn't particularly cheerful. Likewise, the Bureau of Labor Statistics reported that the Consumer Price Index was unchanged in June. But the National Association of Homebuilders' Housing Market Index for July was up six points to 35.

Bernanke Watch, Day One: The chairman of the Federal Reserve was on Capitol Hill on Tuesday, testifying as part of his “Semiannual Monetary Policy Report to the Congress,” and his assessment of the economy, at least for the short term, wasn’t particularly cheerful. He make it clear that the economy is a little too slow for the central bank’s–and everyone else’s–liking. Also, Fed-watchers were watching for the smallest hint of QE3 in what the bearded one had to say. As usual, the chairman spoke in generalities.

For instance: “Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to the economic outlook, the committee made clear at its June meeting that it is prepared to take further action as appropriate to promote a stronger economic recovery.” Does that mean further stimulus by the central bank is around the corner? It sounds like it might be, except that the chairman always says that kind of thing, whether a QE is on tap or not. So the answer is a definitive “maybe.”

During the Q&A, Bernanke defended the Fed’s response to the manipulation of Libor, the global benchmark for $500 trillion or so worth of securities. Back in the summer of 2008, New York Fed president Tim Geithner sent a memo to the Bank of England recommending changes in how Libor is calculated to promote best practices. That, according to Bernanke, was exactly what the Fed needed to do, especially since there was not yet evidence of Libor-related wrongdoing. Essentially, the chairman said, the problem is the direct concern of the Bank of England, not the Federal Reserve.

Homebuilders Feeling Peppy

The wider economy may be slipping back into a crummy funk, but homebuilders are feeling better about their industry. The National Association of Homebuilders said on Tuesday that its Housing Market Index for July was up six points to 35. That was the largest one-month gain experienced by the index in nearly a decade, and brings the index to its highest point since March 2007.

Every component of the index recorded gains in July. The components gauging current sales conditions and traffic of prospective buyers each rose six points, to 37 and 29, respectively, while the component tracking sales expectations for the next six months rose 11 points to 44.

An overall reading of 35 is still in the “not optimistic” zone, since 50 is the dividing line between pessimism and optimism, but the index has spent so many years so far below optimism that 35 seems like it’s within shouting distance of happier times. “Builder confidence increased by solid margins in every region of the country in July, as views of current sales conditions, prospects for future sales and traffic of prospective buyers all improved,” Barry Rutenberg, chairman of the NAHB, noted in a statement.

CPI Unchanged in June

The drought in major portions of the United States might start to push consumer prices up eventually—especially through the impact on the corn crop—but that isn’t happening much yet. The Bureau of Labor Statistics reported that the Consumer Price Index was unchanged in June.

The energy index fell 1.4 percent as the gasoline index declined for the third month in a row; other energy indexes were mixed, noted the BLS. The food index rose 0.2 percent after being unchanged last month because the index for food at home turned up in June. The index for all items less food and energy—the “core,” to use BLS terminology—rose 0.2 percent in June, the fourth such monthly increase in a row.

Wall Street had a moderately up day on Tuesday, perhaps believing in QE3. The Dow Jones Industrial Average gained 78.33 points, or 0.62 percent, while the S&P 500 was up 0.74 percent and the Nasdaq advanced 0.45 percent.