Ben Bernanke Press Conference: The Big Soft Patch Question

Ben Bernanke will have to answer at his press conference the big soft patch question.

Since May, the US economic growth and stock market has hit the skids. The S&P 500 Index has fallen about 5 percent, the housing market is double dipping, the jobs market's recovery is disappointing, and the manufacturing sector is showing signs of weakness.

Meanwhile, consumer inflation continues to tick up.

In a June 7 speech, he acknowledged the recent soft patch but dismissed it as transitory because disruptions from Japan's natural disasters will lessen and energy prices won't remain elevated for long. In the second half of 2011, Bernanke thinks growth will likely to pick up somewhat.

On inflation, Bernanke acknowledged the pickup but dismissed it as not broad-based and transitory in nature.

Now, on June 22, Bernanke will likely be tested on whether or not he'll stick to his assessments.

He'll be asked if the soft patch in the economy is actually more than just Japan's disaster and high energy prices. He may need to address the concern that it's due to something more serious like the fading of US government stimulus (including his own QE2) or a slowdown in the economies of overheating developing countries.

On inflation, he may need to address why inflation (including core inflation) keeps on rising. Also, while commodities prices have fallen since May, they remain at elevated levels.

At the moment, Bernanke is more concerned about the economy than inflation. If he continues to insist that the soft patch is transitory, the market will interpret that as hawkish. If he shows more concern, the market will see it as dovish.

While there is little chance Bernanke will roll out another round of quantitative easing, he may choose to delay the selling of assets held on the Federal Reserve's balance sheet if he becomes less optimistic about the US economy.