Chairman Ben S. Bernanke testified Before the U.S. Senate in the Fed's Semiannual Monetary Policy Report to Congress. Let's take a look at some of the highlights.

The economy has continued to expand, but at a subdued pace. In the labor market, private payroll employment has declined this year, falling at an average pace of 94,000 jobs per month through June. Employment in the construction and manufacturing sectors has been particularly hard hit, although employment declines in a number of other sectors are evident as well. The unemployment rate has risen and now stands at 5-1/2 percent.

Real earnings have been stagnant so far this year; declining values of equities and houses have taken their toll on household balance sheets; credit conditions have tightened; and indicators of consumer sentiment have fallen sharply. More positively, the fiscal stimulus package is providing some timely support to household incomes. Overall, consumption spending seems likely to be restrained over coming quarters.

Growth is projected to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery and as credit conditions gradually improve. However, FOMC participants indicated that considerable uncertainty surrounded their outlook for economic growth and viewed the risks to their forecasts as skewed to the downside.

Inflation has remained high, running at nearly a 3-1/2 percent annual rate over the first five months of this year as measured by the price index for personal consumption expenditures. And, with gasoline and other consumer energy prices rising in recent weeks, inflation seems likely to move temporarily higher in the near term.

At present, accurately assessing and appropriately balancing the risks to the outlook for growth and inflation is a significant challenge for monetary policy makers. The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth. At the same time, upside risks to the inflation outlook have intensified lately, as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher.

Given the high degree of uncertainty, monetary policy makers will need to carefully assess incoming information bearing on the outlook for both inflation and growth. In light of the increase in upside inflation risk, we must be particularly alert to any indications, such as an erosion of longer-term inflation expectations, that the inflationary impulses from commodity prices are becoming embedded in the domestic wage and price setting process.

Actions Speak Louder Than Words

Actions continue to speak louder than words. For all this talk about "inflation", the Fed sure is not concerned much about it.

Bernanke has an ongoing alphabet soup of credit lending facilities and has extended the Primary Dealer Credit Facility to next year. More, recently in a yes we are, no we are not, yes we are scenario the Fed is opening up the discount window to Fannie Mae and Freddie Mac. See Operation "Rescue Fannie" Underway - Paulson a Blatant Liar for more details.

The market has now forced Bernanke to walk away from his ridiculous June assessment that threats to the downside have diminished somewhat.

Bernanke continues to have no vision. He is stuck with his academic models that suggest it is possible to spend ones way out of a recession. It is impossible. Unwarranted spending is particularly dangerous at this juncture. Capital that could and should go to more productive uses, is instead diverted to more malinvestments or personal consumption. That capital is as wasted as a drop of water on the desert.

Bernanke is now spouting the same concerns about a wage-price spiral that Yellen did a couple weeks back. One has to be in La-La Land to think there is any risk of a wage-price spiral. The idea is complete nonsense as discussed in Confessions of a Former Inflationist.

Somehow Bernanke believes that housing and the economy will pick up in 2009. The question remains "Is he that dense or is that just what he is saying?"

The Unsaid As Important As The Said

Bernanke did not mention a thing about the impending commercial real estate bust.

The expansion of commercial real estate (Wal-Mart (WMT) , Target (TGT), Home Depot (HD), Lowes (LOW), Starbucks (SBUX), Pizza Hut (YUM), etc., etc., was the last economic driver for jobs). Every one of those corporations and more are cutting back. The Shopping Center Economic Model Is History.

There is a rising glut of vacancies and downward pressure on rents. Regional banks that escaped the housing debacle instead foolishly undertook commercial real estate bets. Commercial real estate is just one reason why Bank Earnings Won't Recover. Indeed there are Many Hurricanes, Many Eyes.

Bernanke still has his myopic eyes focused on the last hurricane (subprime lending), unable to see the other storms that are approaching.

Money Supply and Interest Rates

There was not a single peep out of Bernanke about money supply. In fact the word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates.

How can you have any reasonable economic policy when the chairman is scared half to death to discuss interest rates and money supply?

Here is a summary of Bernanke's testimony in one word: "Hogwash".