As the White House continues to bury an update of its congressionally-mandate economic predictions, all eyes will be on Federal Reserve Chairman Ben Bernanke this morning when he delivers the Fed's semiannual Humphrey-Hawkins testimony on monetary policy before the House Financial Services Committee.
Financial markets will focus on Big Ben's views on where inflation is heading and the Fed's exit strategy for withdrawing liquidity. But the chatter on Capitol Hill this week is all about deficits, spending, and taxes — and how they relate to President Obama's fast-track push for health care reform.
Since the White House is delaying its own forecast, the Fed Chairman can expect members of Congress to spend more time on fiscal, not monetary, policy. This probably explains why Bernanke took the opportunity to outline his plans in a Wall Street Journal op-ed column this morning.
In its minutes from the Federal Open Market Committee meeting in June, the Fed estimated unemployment topping 10% by late this year or early next year, and remaining elevated through 2010 — well above the Obama Administration's forecasts in February. Nothing in more recent data would indicate that Bernanke has reason to diverge from those estimates today.
Members of Congress will quiz Bernanke on what significantly higher rates of unemployment will mean for federal tax revenues and resulting fiscal deficits in the years ahead. Health care reform, according to recent estimates by the non-partisan Congressional Budget Office, is expected to add to fiscal deficits.
Members of Congress will also want to understand why the Fed is able to publicly provide an outlook for unemployment while the Obama Administration continues to dissemble on the topic, delaying their own reporting until after Congress votes on health care reform.
Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration.