By Jasmin Aline Persch, contributor
Introduction
Ben Bernanke was sworn in as Federal Reserve Chairman on Feb. 1, 2006. Bubbles in the housing and credit markets that developed during the reign of his predecessor, Alan Greenspan, have burst since Bernanke took the helm. The Fed chief anticipated an economic downshift in 2006, but the extent of the housing slowdown and the onset of another shock to the economy — the credit crisis — caught him and many other economists off guard. Here's a look at Bernanke's forecasts since the economy started slumping.";
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The housing bubble
\"Economic growth will moderate toward a more sustainable pace as the year progresses. In particular, one sector that is showing signs of softening is the residential housing market.\"
— Ben Bernanke on April 27, 2006
As demand failed to keep up with home prices that had been skyrocketing for years, the housing bubble expanded at a slower rate early in 2006. Federal Reserve Chairman Ben Bernanke predicted a \"gradual cooling\" of the housing market, but warned that more harm could come from the bubble bursting than anticipated. Yet, the economy continued to add jobs, consumer spending was strong — and the gross domestic product grew at an estimated annual rate of 5.6 percent in the first quarter of 2006.";
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Housing slowdown
\"The U.S. economy appears to be in a period of transition.\"
— Ben Bernanke on July 19, 2006
In the second quarter of 2006, the housing bubble started to deflate as existing and new home sales slowed along with housing starts. Job creation and consumer spending also slowed, the latter likely due to rising energy prices. In testimony to Congress, Bernanke said the central bank was concerned about inflation, and it lowered its outlook for economic growth. After growing strong since 2003, the U.S. economy showed signs of weakening in the spring of 2006.";
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Economic downshift
\"The U.S economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes.\"
— Ben Bernanke on Feb. 14, 2007
By the second half of 2006, the GDP only edged up about 2 percent. In a testimony to Congress on Valentine's Day of 2007, Bernanke blamed the economic downshift on \"a substantial cooling in the housing market,\" but also noted that other sectors of the economy still appeared unaffected. Consumer spending was solid, the job market grew and the unemployment rate was a low 4.6 percent in January.";
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Resilient retail
\"Growth in consumer spending should continue to support the economic expansion in coming quarters.\"
— Ben Bernanke on March 28, 2007
In addition to slack housing demand and flattening or, in some markets, declining home prices, the delinquency rates on subprime mortgages rose sharply in early 2007. Yet, consumer spending, which accounts for about 70 percent of gross domestic product, held up. Bernanke told Congress on March of last year that he predicted the economy would eventually shrug off the housing slowdown. But he also warned that the subprime mortgage mess could contribute to a greater weakening of the economy.";
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The housing question
\"The pace of home sales seems likely to remain sluggish for a time, partly as a result of tightening in lending standards and the recent increase in mortgage interest rates.\"
— Ben Bernanke on July 18, 2007
In a testimony to Congress last July, Bernanke predicted that the economy would likely expand during the remainder of 2007, but he also warned that the housing mess could infect consumer spending. Rising food and energy prices worried the Federal Reserve. Meanwhile, the retail industry, the job market and unemployment rate remained healthy. But central bankers raised their forecast for the jobless rate and lowered their outlook on economic growth. Bernanke also told Congress that the country hadn't seen the worst of the mortgage mess.";
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The credit crisis
\"The economic outlook has been importantly affected by recent developments in financial markets.\"
— Ben Bernanke on Nov. 8, 2007
As delinquencies on subprime mortgages surged, credit concerns spread and borrowing money became much more difficult in 2007. Energy prices continued to rise. Despite the growing pressures on the economy, the gross domestic product grew at almost 4 percent in the second and third quarters of 2007. In a Nov. 8, 2007, testimony to Congress, Bernanke warned that the credit crisis could hurt consumer spending in 2008.";
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Spending struck
\"A number of factors, including continuing increases in energy prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008.\"
— Ben Bernanke on January 17, 2008
Recent revisions in the GDP in the last quarter of 2007 show that economic growth turned negative for the first time since the last recession in 2001. In December of last year, the unemployment rate rose to 5 percent, rising oil prices inflated food prices and foreclosures increased the inventory of unsold homes. In a testimony to Congress in January of this year, Bernanke warned that a combination of these economic ills would likely curb consumer spending this year. The Fed chairman also recommended an economic stimulus package.";
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Economic stimulus?
\"The recently enacted fiscal stimulus package should provide some support for household spending during the second half of this year and into next year.\"
— Ben Bernanke on February 27, 2008
Consumer spending largely slowed down over the holiday season of 2007. Bernanke told Congress that a combination of rising prices and declining home prices contributed to less cash in pocket. Also, the economy added fewer jobs. Central bankers lowered their outlook on economic growth for 2008 because of the credit crisis and a housing market that was collapsing worse than anticipated. Will the tax-rebate checks offer some relief for consumers in 2008?";
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The recession question
\"A recession is possible. Our estimates are that we're slightly growing at the moment, but we think that there's a chance that for the first half as a whole there might be a slight contraction.\"
— Ben Bernanke on April 2, 2008
As the housing and credit crises continued to unfold, Bernanke told Congress in April that he expected the unemployment rate to rise and economic growth to come to a crawl, halt or even contract. Bernanke said that inflation, mostly due to climbing oil prices, was also a concern, but was expected to \"moderate\" over the year. ";
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Economic recovery?
\"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.\"
— Ben Bernanke on July 15, 2008
As banks face losses and some collapse, the busted housing market, weakening job market and rising prices continue to hurt consumer spending in 2008. The unemployment rate climbed to 5.5 percent in June. Inflation stayed at a high 3.5 percent annual rate in the first part of the year. Bernanke told Congress in July that while the government's economic stimulus checks provided some help, consumer spending would remain weak in the near future. However, the Fed chief projected the economy would slowly recover over the next two years as the housing and credit markets heal. But Bernanke warned that much uncertainty surrounds the economy.";
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