Ben Bernanke seeks to reassure, jabs at Washington policy-makers
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With the recovery waning and financial markets caught on a dangerous roller-coaster ride, Federal Reserve Chairman Ben S. Bernanke sought Friday to calm investors’ fears and boost public confidence in the underlying strength and resilience of the American economy. He also took a jab at policymakers in Washington, suggesting that they need to do more to spur economic growth.
But the Fed chief announced no new policy initiative, stating only his oft-repeated phrase that the central bank was prepared to act if needed.
In a much-anticipated speech delivered in Jackson Hole, Wyo., Bernanke focused largely on trying to reassure people that the U.S. economy, for all of its current problems – notably long-term joblessness and the still-wounded housing market -- had not lost its competitive advantages that would ensure a return to long-term growth and prosperity.
He mentioned America’s diverse economy, technological superiority, entrepreneurial culture and research capabilities. “Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” he told his audience of central bankers, economists and others assembled at an annual conference sponsored by the Federal Reserve Bank of Kansas City, Mo.
Bernanke’s comments, however, were shadowed by a pair of economic reports released Friday that highlighted persistent problems that are threatening to upend the recovery.
The government revised down its estimated second-quarter growth of the gross domestic product to a meager rate of 1% from 1.3%. The revision was expected and largely due to weaker exports.
On the upside, private spending and investment in the April-June period were slightly higher than initially estimated.
The GDP, a broad measure of economic activity, grew by an annual rate of just 0.4% in the first quarter. The second half of this year is expected to be a bit stronger, but a major driver of the economy, consumer spending, remains weak amid sluggish hiring and stagnant income gains.
And as many economists see it, the risks of a double-dip recession have risen in recent weeks as the debt crisis in Europe and the political fight over the debt ceiling in Washington and the subsequent downgrade of U.S. debt have jolted Wall Street and taken a toll on public confidence.
The University of Michigan and Reuters, publishers of a survey of consumer sentiment, said Friday that its confidence index fell in August to its second lowest reading in 31 years. In his speech, Bernanke attributed the persistent weakness in the recovery to the deep slump in the housing market and a financial crisis of historic proportions.
“This economic healing will take a while, and there may be setbacks along the way,” he said. Bernanke also urged political leaders to take prudent measures to balance the needs of the current economy with concerns about the nation’s debt problems. “Although the issue of fiscal sustainability must urgently be addressed,” he said, “fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.”
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-- Don Lee, Reporting from Washington