ben s bernanke : current economic and financial conditions and the federal budget testimony by mr ben s bernanke, chairman of the board of governors of the us federal reserve system, before the committee on the budget, us house of representatives, washington dc, 3 june 2009. * * * chairman spratt, ranking member ryan, and other members of the committee, i am pleased to have this opportunity to offer my views on current economic and financial conditions and on issues pertaining to the federal budget. economic developments and outlook the u. s. economy has contracted sharply since last fall, with real gross domestic product ( gdp ) having dropped at an average annual rate of about 6 percent during the fourth quarter of 2008 and the first quarter of this year. among the enormous costs of the downturn is the loss of nearly 6 million jobs since the beginning of 2008. the most recent information on the labor market – the number of new and continuing claims for unemployment insurance through late may – suggests that sizable job losses and further increases in unemployment are likely over the next few months. however, the recent data also suggest that the pace of economic contraction may be slowing. notably, consumer spending, which dropped sharply in the second half of last year, has been roughly flat since the turn of the year, and consumer sentiment has improved. in coming months, households'spending power will be boosted by the fiscal stimulus program. nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market, the declines in equity and housing wealth that households have experienced over the past two years, and still - tight credit conditions. activity in the housing market, after a long period of decline, has also shown some signs of bottoming. sales of existing homes have been fairly stable since late last year, and sales of new homes seem to have flattened out in the past couple of monthly readings, though both remain at depressed levels. meanwhile, construction of new homes has been sufficiently restrained to allow the backlog of unsold new homes to decline – a precondition for any recovery in homebuilding. businesses remain very cautious and continue to reduce their workforces and capital investments. on a more positive note, firms are making progress in shedding the unwanted inventories that they accumulated following last fall's sharp downturn in sales. the commerce department estimates that the pace of inventory liquidation quickened in the first quarter, accounting for a sizable portion of the reported decline in real gdp in that

kevin m warsh : the promise and peril of the new financial architecture speech by mr kevin m warsh, member of the board of governors of the us federal reserve system, at the money marketeers of new york university, new york, 6 november 2008. the original speech, which contains various links to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * overview the financial markets did not observe the august anniversary of the onset of turmoil with even a hint of fondness. 1 instead, market participants seemed to mark the occasion as a kind of coming - of - age opportunity to act out. the subsequent despair among market participants, disrepair in credit markets, and disregard for proper market functioning was more pronounced than witnessed in generations. significant market dislocations disrupted credit flows to households and firms and impaired economic growth. all and all, these conditions demanded – and received – a forceful response from monetary, fiscal, and financial policymakers. there are some notable signs of improvement. short - term funding spreads are retreating from extremely elevated levels. funding maturities are being extended beyond the very near term. money market funds and commercial paper markets are showing signs of stabilization. and credit default swap spreads of banking institutions are narrowing significantly. nonetheless, financial markets overall remain strained. risk spreads remain quite high and lending standards appear strict. indications of economic activity in the united states have turned decidedly negative. the economy contracted slightly in the third quarter, and the recent data on sales and production suggest that the fourth quarter will be weak. still, the depth and duration of this period of weak economic activity remain highly uncertain. the financial turmoil revealed that the old financial architecture is broken. but its successor is not yet established. 2 in my view, the prospects for robust economic growth over the intermediate term are likely to be determined, not principally by the trajectory of housing prices, but by the speed with which a new financial architecture emerges and the form that it takes. this challenge of creating a new financial architecture is hardly unique to the united states. the difficult choices made by policymakers and market participants around the globe will have real implications for future growth prospects. what do i mean by a new financial architecture? recent travails contributed to a consensus that the financial regulatory framework requires fundamental reform. but, in my view, the financial architecture is necessarily broader than the government's regulatory and supervisory response. the new financial architecture, properly understood, must account for the dynamic relationship between private