Bernanke to Cut Rates Further, Faster to Buoy Growth (Update2)

By Craig Torres


Jan. 23 (Bloomberg) --

Federal Reserve Chairman Ben S. Bernanke has decided inflation concerns have faded enough to let him cut interest rates further and faster to keep the U.S. from tipping world economies into recession.

``Now they are free to move very aggressively,'' said New York University professor Mark Gertler, a research co-author with Bernanke and policy consultant at the New York Fed. ``They want to avoid asset panic. They don't want the declines to disrupt credit flows.''

The Fed's emergency rate cut yesterday signals a dramatic shift by policy makers from inflation to growth concerns. It indicates they now see a risk of lower home and stock values feeding back into tighter credit conditions that threaten to choke off growth, economists said.

A decline in oil prices, lower readings on expected inflation, higher unemployment and slowing factory production all helped convince the Federal Open Market Committee that it can lower interest rates more and quicker.

``The action by the Fed is welcome because it's going to pull us out of this much faster,'' Cerberus Capital Management LP Chairman and former Treasury Secretary John Snow said in a Bloomberg Television interview today.

Futures trading suggests a 64 percent chance the Fed will follow up with a cut of as much as another half point Jan. 30, bringing the decrease to 1.25 percentage points in eight days.

Economists' Forecasts

Such a reduction, forecast by analysts including Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc., would be the deepest since the Fed started using the federal funds rate as its main monetary-policy tool around 1990. Futures markets show a 36 percent chance of a 75 basis-point cut. A basis point is 0.01 percentage point.

``Fighting inflation can follow a plan; combating weakness requires improvisation,'' said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs. ``Now, they've switched gears'' and ``will keep easing'' until they sense the economy has reached a turning point.

For Bernanke, 54, that's an about-face from the past five months, when inflation formed the ballast of every policy decision, and forecasts, not markets or near-term data, drove changes in interest rates.

Until yesterday, the Fed had lowered the benchmark lending rate just 1 percentage point in the face of economic weakness, and had used separate tools to deal with liquidity problems in credit markets.

Jan. 30 Cut

Futures contracts on the Chicago Board of Trade show an 80 percent chance the central bank will reduce the rate by 50 basis points on Jan. 30 to 3 percent. A week ago, traders saw no chance the Fed would cut the target below 3.5 percent this month.

The inflation-wary pattern of rate moves under Bernanke befuddled investors who criticized the central bank for treating the symptoms of tighter credit without diagnosing the eventual impact it would have on the economy.

``This should have been done months ago,'' said Steven Einhorn, vice chairman of New York-based Omega Advisors Inc., a $5 billion hedge fund, in response to yesterday's rate action. ``I have a lot of respect for capital markets, and they have been unambiguous in their view of the Federal Reserve: Up until now, every debt instrument out there told you they had been tame, timid and tardy.''

Gertler, who co-wrote a series of papers with Bernanke on how asset prices influence lending, said the Fed had good reason to rely on tools other than monetary policy to address turmoil in credit markets during the last five months of 2007, a strategy he termed ``masterful.''

Fine-Tuning

In August, Fed officials reduced the cost of direct loans from the central bank, and continued to fine-tune ways banks could use the so-called discount window to boost the flow of credit to financial markets. In December, the Fed introduced the term-auction facility, aimed at distributing cash throughout the banking system, to remedy the increasing wariness of financial institutions to lend to each other.

As policy makers acted three times between September and December to lower the federal funds rate, none of their statements suggested they had begun a sustained campaign of rate cuts.

``They seemed to not fully to understand the implications of the seizing up of credit,'' said Einhorn, former head of global research at Goldman Sachs. ``They weren't preemptive, and the capital markets gave them ample evidence they were behind the curve.''

Helicopter

Gertler said the Fed could ill afford to move too quickly to cut rates last year, with the economy growing 4.9 percent in the third quarter, oil marching toward a record $100 a barrel and unemployment below 5 percent until December.

If Fed officials had cut rates in August, ``markets would have been screaming, `Helicopter Ben!''' Gertler said, a reference to Bernanke's 2002 quip about fighting deflation with a ``helicopter drop'' of money.

Gertler said ``the whole key'' to creating conditions for aggressive easing ``is anchoring inflation expectations,'' even if that must come at a cost of slower growth. ``If the Fed had dropped rates like a rock at the first hint of bad news, they seriously risked the danger of losing credibility,'' he added.

While the Fed has two mandates from Congress, low inflation and sustained growth, current Fed officials have made stable prices the essential condition on which their ability to offset growth risks is based.

They tolerate monthly movements in the consumer price index. What those measures mean to the public's view of future prices, a concept economists call ``expectations,'' is what really counts.

``They have been closet inflation targeters,'' said Reinhart, now a resident scholar at the American Enterprise Institute in Washington. ``Hence, they were grudging in delivering policy ease last year and had trouble explaining their action.''

To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Bernanke Says Fiscal Stimulus Could Revive Expansion (Update7)

By Craig Torres and Scott Lanman


Jan. 17 (Bloomberg) --

Federal Reserve Chairman Ben S. Bernanke said fiscal stimulus of as much as $150 billion would help revive economic growth, while warning against any widening of the budget deficit in coming years.

Bernanke's acknowledgment that the economy is weak enough to need stimulus validates forecasts that the Fed will lower interest rates by at least half a percentage point this month. President George W. Bush will tomorrow lay out the general principles he favors for a short-term stimulus, Deputy Press Secretary Tony Fratto said today.

A temporary package of at least $60 billion to $70 billion in spending by early 2009 would have a ``significant'' effect in the second half of this year, Bernanke said.

``It would certainly be measurable, it would not be window dressing,'' he told the House Budget Committee in Washington today in response to a question.

He repeated remarks from last week that the Fed is ready to take ``substantive additional action'' on interest rates to insure against risks of a recession. Treasury notes rallied and the dollar dropped after Bernanke's remarks and a report from the Fed's Philadelphia branch showing manufacturing shrank.

``Support of a temporary fiscal stimulus suggests great concern on Bernanke's part about the downside risks,'' said Robert Eisenbeis, a former research director at the Atlanta Fed. ``He certainly doesn't want to be held responsible for a recession, even though the seeds were laid'' in final years of former chairman Alan Greenspan's tenure, he said.

Rebate, Business Breaks

The Bush administration is close to completing an economic- stimulus proposal that will include $800 rebates for individuals and $1,600 for households as well as tax breaks for businesses, people familiar with the plan said today.

Bernanke warned that a fiscal package could also ``prove quite counterproductive'' if it arrived at the ``wrong time or compromised fiscal discipline in the longer term.''

Bernanke reiterated that the outlook for growth in 2008 has worsened and ``the downside risks to growth have become more pronounced.'' He said the Fed isn't forecasting a recession this year.

Retail sales fell last month, unemployment rose, and housing markets are mired in the worst slump in 16 years.

Bernanke noted that banks are trying to protect asset quality and funding, and tightening credit conditions for the rest of the economy as a result.

``Banks have also evidently become more restrictive in their lending to firms and households,'' he said. ``More expensive and less-available credit seems likely to impose a measure of restraint on economic growth.''

Housing Starts Tumble

Homebuilders broke ground on the fewest homes since 1991 last month, the Commerce Department reported today. Building permits, a sign of future construction, declined by the most in 12 years, suggesting the housing slump will deepen.

Residential construction subtracted about 1 percent from growth in the third quarter, and likely curtailed growth even more in the fourth quarter, Bernanke said. Sluggish housing markets ``may continue to be a drag on growth for a good part of this year.''

Bernanke said inflation, both including and excluding food and energy costs, ``should moderate this year and next, so long as the public's confidence in the Federal Reserve's commitment to price stability is unshaken.'' He cited inflation expectations that appear ``well anchored'' and futures suggesting food and energy price increases will slow.

Split With Greenspan

Bernanke, as in past congressional appearances, avoided recommending any particular tax measure or spending program. His predecessor, Alan Greenspan, involved himself in shaping tax policy, recommending cuts over spending increases in 2001, a strategy which his colleagues disliked out of concern it would compromise the central bank's independence.

The chairman's speech ``is an endorsement of temporary measures, if enacted quickly, but he's covering himself to ensure he is not blamed for anything in a few years, the way Greenspan is now blamed for endorsing the Bush tax cuts,'' said Ian Morris, chief U.S. economist at HSBC Securities USA Inc.

Aside from quick implementation, a stimulus package should also be ``structured so that its effects on aggregate spending are felt as much as possible in the next 12 months,'' Bernanke said today. If stimulus comes at a time when growth is improving, it could be ``destabilizing,'' he said.

Bernanke Guidance

While Bernanke stressed that it's up to elected lawmakers to decide on tax and spending proposals, he did offer advice on the types of measures that may be more effective. He urged that they ``diversify'' the components to broaden the impact.

There is the most ``bang for the buck'' from transferring funds to lower- and middle-income workers because they are more likely than the wealthy to spend the money quickly, Bernanke said. Tax rebates in 2001 helped bolster consumer spending and prevent a deeper recession, the Fed chief said.

Turning to corporate taxes, Bernanke said incentives for investment in software and equipment would be more effective than a cut in the corporate tax rate. He suggested that the rate is more a question for the longer term.

Bernanke declined to comment directly when asked by Republican legislators whether he favors making permanent the 2001 and 2003 tax cuts scheduled to expire in 2010. At the same time, he said that making dividend-tax cuts permanent could have a short-term impact on financial markets.

While stating that tax cuts ``don't generally pay for themselves'' and urging lawmakers to balance the budget, Bernanke said that for a short-term package to help the economy, it would need to widen the budget gap at least for a time.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net , Scott Lanman in Washington at slanman@bloomberg.net

Bair Dissatisfied With Pace of Mortgage Modifications (Update2)

By Alison Vekshin

Jan. 17 (Bloomberg) --

Federal Deposit Insurance Corp. Chairman Sheila Bair said mortgage companies aren't modifying subprime loans quickly enough, one month after the government brokered a deal with the industry aimed at averting foreclosures.

``We must see a pickup in the pace, and the sooner the better,'' Bair said today at a Bear Stearns mortgage and structured products conference in New York. The industry's progress on modifications is not going ``as well as it should be,'' and regulators will be ``closely watching'' its progress, Bair said.

Bair has been the strongest voice among U.S. regulators in pressing mortgage servicers to modify loans for cash-strapped borrowers as foreclosure rates reach record levels. In recent months, she has advocated allowing borrowers with adjustable-rate subprime mortgages to continue making payments at the ``starter'' rate if they can't afford an increase.

Treasury Secretary Henry Paulson last month announced an agreement with mortgage lenders to freeze rates on some subprime loans for five years, a move that the Treasury Department said could affect as many as 1.2 million homeowners.

``Working with Treasury and government regulators, the industry has tools to address this on its own,'' Bair said in her speech. ``And the key is to quickly get borrowers who can afford their homes into long-term loans they can afford to pay.''

`Way Behind'

Lawmakers at all levels of government will explore additional steps if foreclosures keep rising and the economic fallout continues, she said.

``I very much believe in the market,'' Bair said. ``But if market solutions fail to solve the problem, government will step in.''

Bair cited a November Moody's Investors Service report that showed 3.5 percent of loans that reset in the first eight months of 2007 had been modified.

``That puts us way behind the curve going into the new year,'' Bair said, adding that nearly 2 million subprime borrowers will face resets through the end of 2009.

Lenders helped 235,000 of 33 million homeowners avert foreclosure by modifying loans or setting up repayment plans in the three months ended Sept. 30, 2007, the Washington-based Mortgage Bankers Association reported today.

Adjustable-Rate Loans

Servicers modified 13,000 subprime adjustable-rate loans, those considered at greatest risk of foreclosure, and set up 90,000 repayment plans for those mortgages, the industry group said. The banks started foreclosure proceedings on about 384,000 loans.

``What this shows is that there are certain borrowers obviously that are beyond help,'' Jay Brinkmann, the group's vice president of research and the report's author, said in a telephone interview. ``Modifications are a tool, but it's not going to solve every case.''

The survey's data predates the Treasury agreement, in which participants committed to produce monthly reports on their progress.

Americans behind on mortgage payments in the third quarter reached the highest level in 21 years and foreclosures hit a record, the Mortgage Bankers Association said last month.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

Bush Stimulus Plan Includes $1,600 Rebate, People Say (Update2)

By Matthew Benjamin


Jan. 17 (Bloomberg) --

The Bush administration is close to completing an economic-stimulus proposal that will include $800 rebates for individuals and $1,600 for households as well as tax breaks for businesses, people familiar with the plan said.

The proposal is subject to revision as administration officials consult with Republican and Democratic lawmakers in Washington, the people said.

President George W. Bush will lay out the ``principles'' of the economic package tomorrow, though it's ``too early'' to unveil a final proposal, according to his spokesman, who declined to provide details. Congressional leaders say a stimulus package may be as much as $150 billion.

Bush, who returned last night from a trip to the Middle East, has decided the U.S. needs short-term economic assistance from the government to avert an election-year recession, White House officials said earlier today.

``The president does believe that over the short term, to deal with this softening of the economy, that some boost is necessary,'' Deputy Press Secretary Tony Fratto told reporters at a briefing. Bush won't press Congress to extend the tax cuts passed during his first term and set to expire in 2010 as part of the plan.

``The President supports a permanent extension of his tax cuts, and he supports a short-term growth package, but they are separate,'' Fratto said.

Planning

White House and Treasury officials have been working since late November on the outlines of a plan to stave off a recession or ameliorate the effects if one occurs.

The plan the administration is close to proposing includes a temporary elimination of the bottom tax rate, which is now 10 percent, and a consequent lump-sum rebate to all taxpayers, according to the people.

Businesses would get a tax break under the plan that would allow them to deduct 50 percent of the price of new equipment they purchase this year. Small businesses would be able to deduct as much as $200,000 in new equipment purchases, up from the current $112,000 limit.

Asked about the details, a Treasury spokeswoman declined to comment.

House Republican leader John Boehner told reporters in Washington that a package of $100 billion to $150 billion is being discussed by administration officials and lawmakers.

Democrats in Congress are working on their own stimulus plan, which is also expected to include a tax rebate, as well as public works spending and additional aid for the poor through food stamps and other programs.

Bipartisan Support

The deteriorating economy has brought both parties to the conclusion that legislation must be passed and implemented quickly if it is to have any effect. The jobless rate rose to 5 percent in December from 4.7 percent a month earlier, and economists at Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley say the U.S. is probably sliding into a recession.

Senator Hillary Clinton today increased the size of her stimulus proposal, to $110 billion from $70 billion because of signs of further weakness in the economy, according to a press release. Clinton, of New York, and Senator Barack Obama of Illinois, are the leaders in the race for the Democratic presidential nomination. Both have proposed packages of measures to boost the economy.

Arizona Senator John McCain, who's seeking the Republican nomination, today announced an economic-growth plan that would lower the corporate tax rate to 25 percent from 35 percent and give other breaks to business. It avoided short-term stimulus.

Federal Reserve Chairman Ben S. Bernanke told the House Budget Committee in Washington today that a fiscal boost of as much as $150 billion would help revive economic growth.

A package of $100 billion ``would certainly be measurable, it would not be window dressing,'' said Bernanke.

To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net

Japan November Service Demand Rose for Second Month (Update2)

By Toru Fujioka


Jan. 18 (Bloomberg) --

Japan's demand for services unexpectedly climbed for a second month in November, as people spent more on weddings and horse racing.

The tertiary index, a gauge of money households and businesses spend on phone calls, power and transportation, rose 0.1 percent from a month earlier, the Trade Ministry said today in Tokyo. The median estimate of 40 economists surveyed by Bloomberg News was a 0.4 percent drop.

Gains may not be sustained as falling wages and higher oil costs crimp spending by consumers, whose outlays account for more than half of the economy. Some 55 percent of consumers surveyed by the central bank said they plan to pare spending in 2008 because of higher prices, a report this week showed.

``The service sector is losing momentum as Japan's economy slows,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``Domestic demand will weaken as rising oil prices make companies and households more cautious.''

The yen traded at 106.66 against the dollar at 10:59 a.m. in Tokyo, from 106.43 before the report was released.

The increase in service demand was led by one-off factors. Demand for wedding services increased after more days that Japanese tradition holds auspicious fell on weekends or national holidays. People also returned to race tracks in November after meets postponed because of horse flu were held in the month.

``Growth in the service industry has been flat, and this may be reflecting Japan's slowdown,'' said Masato Hisatake, director of economic analysis office at the Trade Ministry.

Five-Year Low

Merchant sentiment fell to a five-year low in December, the government's Economy Watchers index, a survey of barbers, shopkeepers and other people on the frontline of the economy, showed last week.

Japan's core consumer prices, which exclude fresh food, rose at the fastest pace in more than nine years in November. In contrast, wages slipped 0.2 percent, the 10th drop in 11 months.

``Our customers are clearly not in the mood to spend more,'' said Katsuya Okada, a taxi driver in Tokyo. ``It's a very cold winter with sales declining and gasoline prices rising.''

Seven & I Holdings Co., Japan's largest retailer, and J. Front Retailing Co., the country's biggest department-store operator, cut their full-year profit forecasts yesterday on weak clothing sales.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

BOJ Will Probably Keep Rate at 0.5% as Growth Slows (Update1)

By Mayumi Otsuma


Jan. 18 (Bloomberg) --

The Bank of Japan will probably keep interest rates on hold next week and may acknowledge the economy isn't growing as fast as it has estimated.

Governor Toshihiko Fukui and his colleagues will leave the benchmark overnight lending rate at 0.5 percent on Jan. 22, according to all 38 economists surveyed by Bloomberg News. The rate, doubled last February, is the lowest among major economies.

Japan's expansion will keep slowing ``for the time being'' and the cycle of profits feeding into wages and consumption is ``weakening,'' Fukui and his deputy Toshiro Muto said last week. Some investors anticipate a rate cut as a housing slump in the U.S., Japan's biggest export market, slows demand and costlier oil and raw materials erode profits at home.

``The chance of a rate increase in 2008 has almost disappeared, while the possibility of a cut has risen to between 30 percent and 40 percent,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.

There's a 32 percent chance the bank will reduce the benchmark rate by July, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps. Japanese stocks are headed for a third weekly decline on concern the U.S. economy is in a recession.

U.S. President George W. Bush will today unveil an economic stimulus proposal that may include rebates for households and tax breaks for businesses. Federal Reserve Chairman Ben S. Bernanke said yesterday fiscal stimulus would help revive the U.S. economy and reiterated more interest-rate cuts were needed.

Semiannual Outlook

Fukui's policy board will say Japan's economy is performing worse than it anticipated in a twice-yearly outlook in October, and may even cut its growth forecasts at the meeting, according to economists. The bank typically only revises the forecasts in April and October.

Japan's economy will expand 1.8 percent in the year ending March 31 and 2.1 percent in the following year, the central bank said in October. The government already lowered its growth forecast for this fiscal year to 1.3 percent from 2.1 percent after stricter building-permit rules caused housing starts to tumble to a four-decade low.

``The central bank will probably stick to the view that the economy's positive cycle is intact'' while conceding that growth is slower than it predicted three months ago, said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd. in Tokyo. ``In my view, the framework of the bank's outlook is already falling apart and warrants a big revision.''

Conditions Worsening

The central bank last month lowered its assessment of the economy for the first time in three years. Heads of its branches nationwide this week said conditions were worsening in four of Japan's nine regions as housing investment declined and small businesses struggled to pass rising costs on to clients.

Oil and food costs, rather than consumer demand, caused inflation to quicken to the fastest pace in almost a decade in November. Consumer prices excluding fresh food rose 0.4 percent from a year earlier, while wages fell for a third month.

Fukui told parliament last week that higher costs may squeeze profits and slow growth while also lifting consumer prices higher, making policy decisions difficult.

There are signs of weakening demand from abroad as well as at home. Machinery orders fell in November from a month earlier as companies pared spending in anticipation the U.S. slowdown will hurt exports. Goldman Sachs Group Inc. last week said there's a 50 percent chance of a recession in Japan, citing the risk of slower growth in emerging markets.

Most analysts still expect the bank to stick to its policy of raising borrowing costs. Nineteen of 30 economists surveyed said there is a chance of a rate increase in 2008.

Gradual Increases

Fukui reiterated last week that rates need to be lifted gradually as long as the economy expands as expected. He and other policy makers have said keeping them low for too long could encourage overinvestment and make growth unsustainable.

``A rate cut could be an option should the Japanese economy slip into recession and a deflationary spiral, but that possibility is slim,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``With the benchmark rate only at 0.5 percent, a reduction would have a very limited impact on economic growth.''

The central bank will announce its policy decision on Jan. 22 in Tokyo, probably by early afternoon. It will publish its monthly assessment of the economy and a review of the twice- yearly outlook at 3 p.m. and Fukui will speak at a news briefing at 3:30 p.m.

=======================================================
As of 01/18/08 BOJ BOJ BOJ BOJ
Rates Rates Rates Rates
=======================================================
Date of Release 01/22 02/15 03/07 04/09
Time period 2008 2008 2008 2008
Measure % % % %
-------------------------------------------------------
# of replies 38 34 34 34
Median Forecast 0.50% 0.50% 0.50% 0.50%
% Forecast at Median 100.0% 97.1% 97.1% 97.1%
Average Forecast 0.50% 0.49% 0.49% 0.49%
Expected change 0.00% 0.00% 0.00% 0.00%
High Forecast 0.50% 0.50% 0.50% 0.50%
Low Forecast 0.50% 0.25% 0.25% 0.25%
Previous forecast 0.50% 0.50% 0.50% 0.50%
-------------------------------------------------------
ABN Amro Sec. 0.50% 0.50% 0.50% 0.50%
Action Economics 0.50% --- --- ---
Aletti Gestielle 0.50% 0.50% 0.50% 0.50%
BNP Paribas 0.50% 0.50% 0.50% 0.50%
Bank of America 0.50% 0.50% 0.50% 0.50%
Bayerische Landesbank 0.50% 0.50% 0.50% 0.50%
CFC Seymour 0.50% 0.50% 0.50% 0.50%
Capital Economics 0.50% 0.50% 0.50% 0.50%
Credit Suisse 0.50% 0.50% 0.50% 0.50%
DBS Group 0.50% 0.50% 0.50% 0.50%
DZ Bank 0.50% 0.50% 0.50% 0.50%
Dai-Ichi Life Resrch 0.50% 0.50% 0.50% 0.50%
Daiwa Research Inst. 0.50% 0.50% 0.50% 0.50%
Daiwa Sec SMBC 0.50% 0.50% 0.50% 0.50%
Dresdner Kleinwort 0.50% --- --- ---
Fortis Bank 0.50% 0.50% 0.50% 0.50%
Goldman Sachs 0.50% 0.50% 0.50% 0.50%
HSBC 0.50% 0.50% 0.50% 0.50%
Intesa Sanpaolo 0.50% 0.50% 0.50% 0.50%
J.P. Morgan 0.50% 0.50% 0.50% 0.50%
Lehman Brothers 0.50% 0.50% 0.50% 0.50%
Lloyd's TSB 0.50% 0.50% 0.50% 0.50%
Macroecon Global Adviso 0.50% 0.50% 0.50% 0.50%
Mitsubishi UFJ Sec. BCR 0.50% 0.25% 0.25% 0.25%
Mitsubishi UFJ Sec 0.50% 0.50% 0.50% 0.50%
Mizuho Securities 0.50% 0.50% 0.50% 0.50%
Morgan Stanley 0.50% 0.50% 0.50% 0.50%
Natixis 0.50% 0.50% 0.50% 0.50%
Nikko Citigroup 0.50% 0.50% 0.50% 0.50%
Nomura Securities 0.50% 0.50% 0.50% 0.50%
Norinchukin Research 0.50% 0.50% 0.50% 0.50%
RBS Securities 0.50% 0.50% 0.50% 0.50%
Shinshu Univeristy 0.50% 0.50% 0.50% 0.50%
Stone & McCarthy 0.50% --- --- ---
Tapiola Insurance 0.50% 0.50% 0.50% 0.50%
Totan Research 0.50% 0.50% 0.50% 0.50%
UBS Securities 0.50% 0.50% 0.50% 0.50%
WestLB 0.50% --- --- ---
=======================================================

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Bernanke Is Mistaken for Paulson Before Congress (Update1)

By Vivien Lou Chen


Jan. 17 (Bloomberg) --

Federal Reserve Chairman Ben S. Bernanke discovered that an Ivy League career just doesn't leave the same impression as a Wall Street resume for some lawmakers.

Approaching his second anniversary at the helm of the U.S. central bank, Bernanke found himself mistaken for Treasury Secretary Henry Paulson during a hearing in Congress today.

``Seeing as how you were the former CEO of Goldman Sachs,'' Representative Marcy Kaptur, a Democrat from Ohio, began to say before the Fed chief interjected.

``No, you're confusing me with the Treasury secretary,'' Bernanke said at the House Budget Committee hearing. Paulson was the chief executive officer of Goldman Sachs Group Inc. before joining the Treasury in 2006.

``I got the wrong firm?'' asked Kaptur, 61, who is serving her 13th term and represents northern Ohio's ninth Congressional district.

``Yes,'' replied Bernanke.

``Paulson. Oh, OK. Where were you, sir?''

``I was a CEO of the Princeton Economics Department,'' Bernanke replied to laughter from the hearing room. Bernanke, 54, chaired the economics department at the Ivy League university before becoming a Fed governor in 2002. He later headed the White House Council of Economic Advisers, becoming Fed chairman in February 2006.

Bernanke, who appears on the cover of this coming Sunday's New York Times magazine, acknowledged before Congress today that the economy is weak enough to need fiscal stimulus.

``It was an honest mistake,'' said Emily Boening, a spokeswoman for Kaptur. ``But the Republicans have made bigger, more severe mistakes on economic policy. It was a few seconds of a very productive hearing otherwise.''

To contact the reporter on this story: Vivien Lou Chen in San Francisco vchen1@bloomberg.net
Last Updated: January 17, 2008 18:07 EST