Two weeks into the new year, a report of retail decline was another stroke in a patch of turbulent recession as monetary policy makers and the government acknowledge the imperfections and work to fashion a portrait of economic recovery.
A new statistic yesterday showed a 2.7 percent decline in U.S. retail sales in December, the sixth straight month of contraction in the midst of a national yearlong recession. The sales drop is concurrent with 2.8 million jobs lost in the U.S. in 2008.
One major voice in the crisis, the head of the quasi-public independent Federal Reserve Bank based in Washington D.C., noted yesterday in a London School of Economics visit that while actions have been taken to shore up the financial system and promote economic recovery, more may need to be done.
Government policy responses around the world will be critical determinants of the speed and vigor of the recovery, said Fed chief Ben Bernanke. His dual congressional mandate as the presidential appointee to lead the U.S. banking system is to keep unemployment and inflation low.
Commenting on the latest developments in the government's plan to tackle the crisis, he took a long term view.
The current $700 billion tax cut and spending proposal being negotiated and refined by the incoming Obama administration and Congress -- which would build and repair new roads, bridges, among other projects -- may provide a significant boost to the economy, at least in the short term.
In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system, he said.
The government has already moved to buttress the system and avoid a meltdown, he said. Bernanke noted that the Fed has provided billions of dollars to troubled banks and added its guarantee to billions more in risky investments.
In one hypothetical scenario, among a laundry list of other possible actions, he said the government could decide to purchase those bad assets outright, taking them off the hands of banks to reduce their risk directly, he said.
To limit the severity and chance of future crises, he went on to point out the need to improve supervisory and regulatory systems, as well as promoting greater international cooperation in improving them.
The head of one of the Fed's branches in Philadelphia, Charles Plosser, said today he expects economic recovery by the second half of the year.