Bernanke: U.S. Economy Growing, Unemployment Persists
By Merle David Kellerhals Jr.
Staff Writer
Washington - The U.S. economy is growing, but unemployment is expected to persist while inflation should remain low, Federal Reserve Chairman Ben Bernanke told a congressional committee.
"The U.S. economy expanded at about a 4 percent annual rate during the second half of last year," Bernanke testified before the U.S. House Financial Services Committee February 24. "A significant portion of that growth, however, can be attributed to the progress firms made in working down unwanted inventories of unsold goods, which left them more willing to increase production."
Bernanke was making the first of a series of appearances before congressional committees to give his twice-a-year testimony on the state of the U.S. economy and monetary policy decisions made by the Federal Reserve, the nation's central bank. The United States entered one of the steepest recessions in its history in December 2007 and slowly began its recovery in late 2009. Bernanke testified that U.S. economic activity contracted sharply following the intensification of the global financial crisis in the fall of 2008.
While concerted stimulus efforts by President Obama, the Treasury Department, the Federal Reserve and other federal agencies have helped stabilize the nation's financial system and spur recovery, Bernanke said, a sustained recovery will depend on continued growth in private sector demand for goods and services.
"Consumer spending has recently picked up, reflecting gains in real disposable income and household wealth and tentative signs of stabilization in the labor market," he testified. And there has been a significant rise in business investment in equipment and software, Bernanke said, which is often taken as an early sign of expanded business growth.
On February 18, the Federal Reserve raised the discount rate it charges commercial banks for emergency loans one-quarter point to 0.75 percent. The aim is to shift banks away from emergency borrowing from the government and toward traditional money markets, he said.
The more potent federal funds rate - the Fed's main policy tool - will likely remain at a historically low range of 0 to 0.25 percent "for an extended period," Bernanke testified.
Bernanke also acknowledged that international trade - supported by a recovery in the economies of many U.S. trading partners - is rebounding from its deep contraction of a year ago.
According to a recent report by the U.S. Commerce Department, the U.S. trade deficit in 2009 totaled $380.66 billion, the smallest trade imbalance in eight years. That was because the recession cut sharply into imports, lessening consumer demand as consumers spent less on nonessentials. But government economists believe that will shift in 2010 as the U.S. economy recovers from the recession and demand for imports grows, the Commerce Department reported.
The recovery in employment has been slower in coming. Since December 2007, the United States has lost 8.4 million jobs.
"The job market has been hit especially hard by the recession, as employers reacted to sharp sales declines and concerns about credit availability by deeply cutting their workforces in late 2008 and in 2009," Bernanke testified. But he added that some recent indicators suggest the deterioration in the nation's labor market is changing.
"Job losses have slowed considerably, and the number of full-time jobs in manufacturing rose modestly in January," he said.
Bernanke said he is concerned about the long-term implications of high unemployment for workers' skills and wages. "More than 40 percent of the unemployed have been out of work six months or more, nearly double the share of a year ago," he said.
Bernanke said most economic indicators suggest that inflation will remain subdued for some time. He pegs that assessment to slack in the labor and product markets that has reduced wage and price pressures, sharp increases in productivity that have reduced producers' labor costs and a very slow rise in the cost of shelter, which figures strongly in consumer price indexes.
REGULATORY REFORM
Bernanke told the congressional committee that strengthening the U.S. financial regulatory system is essential to the nation's long-term economic stability. He called on Congress to pass legislation that would enhance the regulation and supervision of the nation's financial system from banking to investing.
"The Federal Reserve strongly supports the Congress' ongoing efforts to achieve comprehensive financial reform," he said. "The recent crisis has also underscored the extent to which direct involvement in the oversight of banks and bank holding companies contributes to the Federal Reserve's effectiveness in carrying out its responsibilities as a central bank, including the making of monetary policy and the management of the discount window."
The Group of 20 advanced and emerging global economies said at two summits held in 2009 that the financial sector needed greater regulation and oversight to prevent risk-taking that has jeopardized global economic stability.
(This is a product of the Bureau of International Information Programs, U.S. Department of State. )
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