US Federal Reserve Chairman Ben S Bernanke said Wednesday that the country’s economy was continuing to expand moderately, thanks to stimulative monetary and fiscal policies, but jobs and the housing market remained worrisome.
Testifying before the US Senate Banking Committee in his semi-annual assessment of the economic situation, Bernanke noted a “slow recovery” in the job market that was in turn impacting on a “weak” housing market.
With the economy still sluggish, the central bank had to remain “prepared” to step in as needed to help boost growth, Bernanke said. But he offered few insights on additional steps the Fed might take, beyond keeping interest rates at a record low of near 0 percent.
Bernanke also hailed a sweeping overhaul of US financial regulation that was signed into law by President Barack Obama Wednesday.
“That legislation represents significant progress toward reducing the likelihood of future financial crises and strengthening the capacity of financial regulators to respond to risks that may emerge,” Bernanke said.
But he cautioned that “much work remains to be done” in implementing the legislation. The reforms would “place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years.”
Bernanke said the Fed’s economic outlook remained “qualitatively similar” to previous forecasts in February and May, with real Gross Domestic Product growth expected at 3 percent to 3.5 percent this year.
This would be followed by 3.5-to-4.5-percent growth next year and 2012, he said in opening remarks to the committee.
Bernanke said real consumer spending grew at an annual 2.5-percent rate in the first half of 2010, characterised by rapid expansion on purchases of durable goods.
“However, the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction,” he told the committee.
The job market remained tough. Bernanke said that private payrolls had expanded by about 100,000 per month in the first half of the year.
But he cautioned that this was “a pace insufficient to reduce the unemployment rate materially,” and progress in cutting joblessness “is now expected to be somewhat slower than we previously projected.”
Bernanke’s testimony was hotly anticipated amid a debate between US lawmakers over how to revive a still-sagging economy. Obama’s approval ratings have remained low, with a jobless rate stuck at 9.5 percent.
Underscoring the slower pace of job recovery, Bernanke said: “In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009.”
Democratic lawmakers have been pushing to inject more public funds into the economy, beyond a 787-billion-dollar fiscal stimulus approved last year, while conservatives have urged more attention to the soaring fiscal deficit.
The Federal Reserve, too, has been divided over how quickly to relax monetary policy measures that have been designed to stimulate the economy. Some central bank members have wavered on decisions to keep interest rates at a record low of near 0 percent.
Backing the need for rates to remain low, Bernanke said inflation was expected to remain “subdued” with an average rate of just 1 percent this year and remaining “low” during 2011 and 2012.