Bernanke quiet on next Fed move, stresses job crisis

Bernanke said the Fed had marked down its outlook for US economic growth and announced it would extend its September policy meeting to two days to consider its options. But he said the onus for boosting long-term growth prospects lay at the feet of the White House and the US Congress.

“It is clear the recovery from the crisis has been much less robust than we had hoped,” he told a Fed conference.

Under Bernanke’s leadership, the US central bank launched an unprecedented array of measures to steer the economy away from what could have been a second Great Depression. A weak raft of data has led analysts to say chances of a new recession could range as high as 50 per cent.

The economy grew at a paltry 1 per cent annual rate in the second quarter, the government said.

“The growth fundamentals of the US do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said, adding, “The economic healing will take a while, and there may be setbacks along the way,” he added.

His optimism carried an important caveat. He said if policymakers failed to bring down the “extraordinarily” high level of US long-term unemployment, jobs skills could atrophy, harming the economy’s long-run potential.

The jobless rate stood at 9.1 percent in July, with nearly half of the unemployed out of work for 27 weeks or more. Financial markets gave a volatile reception to Bernanke’s speech; some participants had expected fresh details on steps the Fed could take to spur stronger growth.

Bernanke made plain the central bank’s policy-setting Federal Open Market Committee, which next meets on Sept. 20 and 21, found recent developments troubling. However, he said most policies that would ensure a solid foundation for long-term growth were outside the Fed’s province.

He said Europe’s debt struggles, a political battle over the US budget and S&P’s move lay behind the gut-wrenching market volatility in recent weeks, which had harmed growth prospects.

The Fed chief said the economy could benefit over the long haul by putting the US budget on a sustainable path, and he suggested Washington explore ways to make the budget process less contentious. He warned, however, that tightening fiscal policy too soon could harm the fragile recovery.

Earlier this month, the Fed said it expected to hold overnight US interest rates near zero for at least the next two years, a move that elicited three dissents, something the central bank has not seen since 1992.

As gloomy news on the US economy mounted in recent weeks, stock markets plunged and speculation grew the Fed would crank up its crisis-fighting operation.

DH Newsletter Privacy Policy Get the top news in your inbox
GET IT
Comments (+)