Bernanke Says States Will Benefit from Strong Economic Recovery

Bernanke says economic recovery to help states
Just as the Beige book came out yesterday, Federal Reserve Chairman Ben S. Bernanke alluded that state and local government may get some relief in their budget problems if the U.S. economy continues to improve.

In Bernanke’s New York speech Wednesday, he said, “If the economy continues to strengthen at about the pace projected by the Federal Reserve and many private forecasters, states and localities may start to get a little breathing space.

State and local governments nationwide have been initiating necessary spending cuts, leading to investors being concerned that local governments may default as their lack of cash continued. This caused investors to remove money from municipal bond mutual funds over the course of the past three and a half months. Fourth quarter growth domestic product growth also declined.

Bloomfield’s Valuation index had yields on top-rated tax-exempt municipal bonds maturing in 10 years falling approximately 35 basis points in the month of February, the deepest monthly decline shown since last August.

Though the risk remains slightly higher that comfortable, Bernanke said that they were still at acceptable levels.

Bernanke, maintained that the Fed will stay on course for their purchase of $600 billion of Treasuries through June, yet did not eliminate the possibility of expanding the “quantitative easing” program, which is essentially a devaluation of the dollar.

Despite White House claims the the recession is over, Bernanke told the House Financial Services Committee the the economic recovery “is not firmly established.”

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