Bernanke: US Economy 'Far from Satisfactory'

Aug. 31, 2012
Calls stagnation in labor market a 'grave concern.'

U.S. Federal Reserve Chairman Ben Bernanke expressed deep worry over the U.S. economy Friday, calling the situation unsatisfactory and saying labor market stagnation was "a grave concern."

In a much-anticipated speech to central bankers in Jackson Hole, Wyoming, the chief of the U.S. central bank offered no new promises of intervention to boost growth, but strongly signaled that he was leaning that way.

"The economic situation is obviously far from satisfactory," he said in the keynote speech of the Fed's annual conference of central bankers.

"Growth in recent quarters has been tepid, and so, not surprisingly, we have seen no net improvement in the unemployment rate since January," he said.

"Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time."

Bernanke made clear that the jobless rate, at 8.3%, is one of his biggest worries as head of the central bank, which has reducing unemployment as a key goal.

"The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years."

"Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

Bernanke, whose policies have been criticized by U.S. conservative politicians, including Republican presidential candidate Mitt Romney, delivered a lengthy defense of the Fed's intervention actions since the financial crisis.

He said that moves to drive down long-term interest rates through its "quantitative easing" (QE), or bond purchases, and other programs had boosted growth and added jobs, while not increasing the threat of inflation.

Such actions "may have raised the level of output by almost 3% and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred," he said.

"A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks."

He warned, as he has over much of the past year, that Fed action is not a panacea for policy action from political leaders.

He said the economy was being held back by the weak housing market but also by heavy spending cuts by the federal and state and local governments.

Adding to that are policy uncertainties, including partisan battles over raising the debt ceiling and the looming "fiscal cliff" policy, a poison-pill law from last year meant to address fiscal imbalance that could force a sharp contraction in the economy beginning on January 1 if not changed.

"It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs," he said.

"However, policymakers should take care to avoid a sharp near-term fiscal contraction that could endanger the recovery."

Copyright Agence France-Presse, 2012

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