As a result, Mr. Bernanke said, progress in reducing the nation’s unemployment rate, now at 9.5 percent, is expected to be “somewhat slower” than thought. Unemployment is expected to stay high, in the 9 percent range, through the end of this year, under the Fed’s forecast.
High unemployment is a drag on household spending, Mr. Bernanke said, although he believed both consumers and businesses would spend enough to keep the recovery intact.
Mr. Bernanke also said it would take a “significant amount of time” to restore the nearly 8.5 million jobs wiped out in 2008 and 2009.
And Mr. Bernanke said the housing market remains “weak” and noted that the overhang of vacant or foreclosed houses is weighing on home prices and home construction.
Given the weak recovery, inflation is not a problem, Mr. Bernanke said. However, he didn’t talk about deflation, a prolonged and destabilizing drop in prices for goods, in the values of stocks and homes, and in wages. Although most economists think the prospects of deflation are remote, some Fed officials have expressed concern about it.
To strengthen the economy, many economists predict the Fed will hold a key bank lending rate at a record low near zero well into 2011, or possibly into 2012. Doing so would help nip any deflationary forces.
And keeping that bank rate at superlow levels also would mean rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans would stay at their lowest point in decades.
Ultralow lending rates, however, haven’t done much lately to rev up the economy. Consumers and businesses are cautious and aren’t showing an appetite to spend as lavishly as they usually do in the early stages of economic recoveries.
Mr. Bernanke, meanwhile, welcomed Congress‘ revamp of financial regulations signed into law by President Obama on Wednesday. The new law, he said, “will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years.”
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