Bernanke more hopeful recovery is sustainable

By @ibtimes on

The U.S. economy may be finally hitting its stride, even if growth remains too weak to put a real dent in the nation's jobless rate, Federal Reserve Chairman Ben Bernanke said on Friday.

Offering no real clues on the future direction of monetary policy, Bernanke sounded cautiously more upbeat than he had in his most recent public remarks, citing improvements in consumer spending and a drop in claims for jobless benefits as hopeful signs that a languid recovery was perking up.

We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold, the central bank chief said in his first testimony to Congress since the Fed launched a controversial plan to buy an additional $600 billion in government bonds.

His remarks were made public just an hour after the Labor Department reported the economy generated a disappointing 103,000 jobs in December.

The jobless rate dropped to 9.4 percent from 9.8 percent, but the decline was partly due to a troubling rise in the number of people exiting the workforce.

Just a month ago, in an interview on the CBS program 60 Minutes, Bernanke had voiced a degree of trepidation about the economy's rebound.

In his testimony to the Senate Budget Committee, which was submitted to Congress before the jobs data, Bernanke defended the Fed's bond purchase by highlighting the weakness in employment and what he saw as the risks associated with very low rates of inflation.

Persistently high unemployment, by damping household income and confidence, could threaten the strength and sustainability of the recovery, Bernanke said.

Very low inflation increases the risk that new adverse shocks could push the economy into deflation. Deflation induced by economic slack can lead to extended periods of poor economic performance.

Addressing the budget deficit, a hot topic in Washington now with newly empowered Republicans pushing for spending cuts, Bernanke urged lawmakers to take a go-slow approach to any cuts.

Fiscal policymakers will need to continue to take into account the low level of economic activity and the still-fragile nature of the economic recovery, he said.

At the same time, Bernanke came down hard on what he described as unsustainable long-term fiscal path.

Doing nothing will not be an option indefinitely, Bernanke said. Diminishing confidence on the part of investors that deficits will be brought under control would likely lead to sharply rising interest rates on government debt, and, potentially, to broader financial turmoil.

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