Bernanke Defending Stimulus Efforts

http://www.nytimes.com/2013/02/27/business/economy/fed-chairman-defends-stimulus-efforts.html?ref=business

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"The man who is prepared has his battle half fought." (Miguel de Cervantes)

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In testimony before the Senate Banking Committee, Fed Chairman Ben Bernanke urged Congress and the Obama administration to replace the budget cuts scheduled to begin this Friday with a plan to reduce federal deficits more gradually.

It doesn't appear that either party has any intention of proposing an alternative to "sequestration" but it was important to hear Bernanke reiterate his intention to continue the Fed's bond buying program until the unemployment rate goes down to 6.5%. I don't think the U.S. has had anything historically to match what Bernanke's doing with the "link" to unemployment.

There are two things I watch with the economy: home sales and unemployment. The WSJ reports today that new-home sales posted the biggest monthly jump in nearly 20 years last month, reaching the highest level since 2008. The most prestigious report on "housing," the S&P Case-Shiller home price index grew 5.9% (10 city index) and 6.8% (20 city index) compared with a year earlier.

In a separate report, the Federal Housing Finance Agency said U.S. home prices rose for the 11th consecutive month in December.

In a separate interview, Robert Shiller, co-creator of the S&P/Case-Shiller index that bears his name, said that he's hopeful about the housing signals but part of the reason the indexes have gone up is the the sale of "foreclosed homes" has gone down which is a good sign in and of itself, but also a reason why the "average" home price has gone up.

Even for Shiller, home prices are very hard to predict. His guess is that prices could go up 1% to 2% per year for the next 5 years. But, it's a market with "risk" in it.

That's why Ben Bernanke continues to have an unemployment goal in his economic stimulus campaign.