A flood of new jobs? No, but no double-dip recession either, Bernanke says
Federal Reserve Chairman Ben S. Bernanke on Wednesday said he expected the country’s economic recovery to remain on track despite Europe’s debt crisis.
But he indicated at a congressional hearing that U.S. growth was unlikely to be fast enough to produce enough new jobs to make a sizable dent in the high unemployment rate anytime soon.
Although hiring prospects have improved, Bernanke said, “a significant amount of time will be required to restore the nearly 8.5 million jobs that were lost in 2008 and 2009.”
Bernanke said the European debt crisis would probably have only a “modest” effect on the American economy, assuming Wall Street stabilized. He described the European response to the crisis as encouraging, but he noted that uncertainties remained and that Fed officials would continue to monitor the situation closely.
Stocks initially rallied on Bernanke’s remarks, with the Dow up as much as 125 points. But the blue-chip gauge later gave up all of that gain, closing down 40.73 points, at 9,899.25.
Earlier, European stocks closed up sharply after weeks of turmoil on the continent wreaked havoc on investors’ confidence worldwide.
Concern related to Europe and weak job growth in the U.S. have increased risks that the American economy will fall back into recession, private analysts say.
Although Bernanke said he couldn’t rule out the possibility of a double-dip recession, he said he expected economic growth of about 3.5% this year and slightly higher next year — rates that are modest given the sharp contraction of the economy during the 2008-09 recession.
But in answering lawmakers’ questions Wednesday, the Fed chairman said the economy had made an important transition. Initially driven largely by government spending and Fed support policies, economic growth was now being fueled by private forces, he said — consumer spending, exports and business investments.
“That is encouraging in terms of sustainability,” he told members of the House Budget Committee.
The Fed’s regional banks painted a similar picture of a moderately improving economy in a report released Wednesday.
The latest “beige book,” an anecdotal assessment of economic activity published eight times a year by the Fed, indicates that consumer spending and tourism have generally increased. Capital spending also has risen, led by the manufacturing, transportation and energy industries.
But the report says the commercial real estate market remains weak, as does the housing market, weighed down by tight credit, high foreclosures and a large inventory of homes for sale.
Wednesday’s House hearing had little of the fireworks that Bernanke had been accustomed to in congressional appearances over the last year. Lawmakers repeatedly had criticized the Fed’s policies and effectiveness as a banking regulator.
But the Fed chairman was caught Wednesday in a crossfire of partisan lawmakers who sought to blame one another for the nation’s budgetary and economic woes.
Republicans displayed a graph showing the budget deficits, projected to reach a record of nearly $1.6 trillion in the 2011 fiscal year under the Obama administration’s proposal.
Democrats pressed Bernanke to say how much the Bush administration’s tax-cut policies in 2001 and 2003 had contributed to the deficits. The Fed chairman said they played an important role but gave no quantitative assessment.
Bernanke said it was unrealistic to expect leaders to balance the budget in the near term, given the weak economy. But he said coming up with a solid plan would shore up confidence in the markets.
Asked by Rep. Charles Djou (R-Hawaii) whether more stimulus for the economy was needed, Bernanke gave no direct answer. But any such move, he said, should be combined with a plan showing how the U.S. would return to a more-balanced budget down the road.
Of Obama’s $787-billion stimulus package that passed last year, Bernanke said, “I believe the Recovery Act did create growth and jobs. I think it did contribute to the recovery.”
