Fed chief Bernanke acknowledges slowing economy
09/08/2011 4:59 PM
03/14/2015 2:06 PM
WASHINGTON — Cautious consumers and persistent headwinds threaten the U.S. economic recovery and are leading to a "slower pace of recovery over coming quarters," Federal Reserve Chairman Ben S. Bernanke said Thursday.
In a speech to the Economic Club of Minnesota, Bernanke didn't try to sugarcoat the challenges facing the slowing U.S. economy, which is increasingly at risk of sliding back into a recession like the one that ended in June 2009.
"From recent comprehensive revisions of government economic data, we have learned that the recession was even deeper and the recovery weaker than we had previously thought; indeed, aggregate output in the United States still has not returned to the level that it had attained before the crisis," the Fed chief said. "Importantly, economic growth over the past two years has, for the most part, been at rates insufficient to achieve sustained reductions in the unemployment rate, which has recently been fluctuating a bit above 9 percent."
There'd been hopes on Wall Street that Bernanke on Thursday might outline next steps, but he didn't; he said options will be debated at the Sept. 20-21 meeting of Fed policymakers.
One surprise for the nation's central bank chief is the deep caution shown by U.S. consumers, who during boom times accounted for about 70 percent of U.S. economic activity.
"After contracting very sharply during the recession, consumer spending expanded moderately through 2010, only to decelerate in the first half of 2011," Bernanke said. He cited temporary factors such as Japan's nuclear disaster and a spike in oil prices that weighed on consumers, and added other factors, too.
"Households are struggling with other important headwinds as well, including the persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high for many, notwithstanding that households, in the aggregate, have been saving more and borrowing less."
In addition, ongoing debt problems in Europe have troubled U.S. banks and financial markets. On Thursday, the head of the European Central Bank offered a grim view of his regional economy. Jean-Claude Trichet said during a press conference in Germany that there was "particularly high uncertainty and intensified downside risks" in greater Europe, lowering his regional growth forecast for the rest of 2011.
Bernanke's legal mandate is to keep inflation in check while promoting full employment. Like President Barack Obama, he's under pressure to find some spark for an economy that had an annual growth rate of 0.4 percent in the first quarter of the year and 1 percent from April to June.
The Fed has held its benchmark lending rate at near zero since December 2008. It also has purchased trillions of dollars worth of mortgage bonds and government securities in an attempt to keep rates low and encourage investment and risk-taking.
Asked from the audience about recent dissent in votes among Fed policymakers, Bernanke downplayed the significance of the rare public splits.
"One thing that is certainly evident is that we are currently in a situation which, in many ways, is unprecedented," the Fed chief said, adding, "It's natural that we have some disagreement."
He cited the worst recession since the Great Depression, ongoing stress in global financial markets and other challenges that forced the Fed to seek "alternative ways" to stimulate the economy.
Bernanke was silent on steps that President Obama and Congress can take to spark hiring and growth. He also was cautious when responding to questions about the bitter partisan divide as a special congressional deficit-reduction panel began its work on Thursday.
The Fed chief warned against steep near-term spending cuts that could hurt an economy at risk of stalling. Supporting steps to address long-term debt challenges, he cautioned that "fiscal policymakers should not, as a consequence, disregard the fragility of the economic recovery."
Bernanke is under political fire in the emerging 2012 campaign season. During Wednesday night's debate among GOP presidential candidates, front-runner Rick Perry, the governor of Texas, stuck to his accusation that Bernanke's rescue efforts were disastrous. His closest rival, Mitt Romney, said he wouldn't reappoint the Fed chief when his term ends in 2014.
Bernanke avoided those slights during his speech.
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