- The Washington Times - Monday, December 7, 2009

Although the manufacturing sector has expanded four months in a row and the unemployment rate dipped last month, Federal Reserve Chairman Ben S. Bernanke warned Monday that there still is not sufficient momentum to declare that the nascent economic recovery will be long-lasting.

“Though we have seen some improvement in economic activity,” Mr. Bernanke told the Economic Club of Washington, “we still have some way to go before we can be assured that the recovery will be self-sustaining.”

The Fed chairman noted the “encouraging” development of “stronger demand for homes and consumer goods and service.” And he pointed to evidence that housing prices “have firmed a bit.”

Most economists believe recession ended in the summer, probably in July or August. During the third quarter, the U.S. economy expanded at an annual rate of 2.8 percent, the first advance in five quarters.

On the employment front, the nation’s jobless rate declined from 10.2 percent in October to 10 percent in November, the Labor Department reported Friday. Much more startling was the fact that only 11,000 jobs were lost last month, much fewer than the 140,000 or so that many economists were forecasting. Also, job losses for September and October were revised sharply downward.

However, the Fed chairman was cautious about future improvement in the labor market.

“At issue is whether the recovery will be strong enough to create the large number of jobs that will be needed to materially bring down the unemployment rate,” he said.

“My best guess at this point is that we will continue to see modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like,” Mr. Bernanke said.

In its last forecast, the Fed estimated the jobless rate would hover between 9.3 percent and 9.7 percent during the fourth quarter of 2010. But many private economists, including Moody’s Economy.com and Wells Fargo, expect the unemployment rate to remain above 10 percent through the end of next year.

To unclog the nation’s credit markets and to battle a plunging economy, the Fed lowered its target overnight interest rate to between 0 and 0.25 percent last December. Following its last policy meeting in early November, the Fed announced its intention to keep short-term interest rates at “exceptionally low levels” for “an extended period.”

Monday, Mr. Bernanke repeated his view that the Fed’s expansionary monetary policy will not lead to higher inflation.

“Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road?” he asked.

“The answer is ‘no,’” he declared, adding, “The Federal Reserve is committed to keeping inflation low and will be able to do so.”

Consumer prices have actually declined 0.2 percent over the past 12 months, but some analysts fear that the Fed’s extraordinary actions to battle the worst financial crisis and deepest downturn since the Great Depression could sow the seeds of inflation.

Mr. Bernanke, who has been nominated for a second four-year term as Fed chairman, has been arguing for months that the Fed’s “exit strategy” would prevent a burst of inflation.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide