- The Washington Times - Thursday, April 15, 2010

Federal Reserve Chairman Ben S. Bernanke told Congress Wednesday that he has confidence the unfolding economic recovery will have staying power, although it won’t be strong enough to bring quick relief to high unemployment.

Mr. Bernanke, testifying before Congress’ Joint Economic Committee, also once again called on lawmakers and the White House to come up with a plan to whittle down record-high budget deficits.

Even though sizable deficits right now are “unavoidable” given the damage wrought by the recession, the persistence of red ink raises risks to the country’s long-term economic health, he said.

A credible plan to pare the deficit could provide the economy with benefits in the near term, including lower longer-term interest rates and increased consumer and business confidence, Mr. Bernanke told lawmakers.

“Addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult,” he warned.

On the economy, Mr. Bernanke seemed slightly more optimistic that the fledgling recovery will keep on going after massive government stimulus fades later this year. Incoming economic barometers suggest that growth in demand by consumers and businesses “will be sufficient to promote a moderate economic recovery in coming quarters,” he said.

In fact, the odds of a “double dip” recession, where the economy would start shrinking again, have receded, Mr. Bernanke said. The risk of that happening “while not negligible is certainly less than it was a few months ago,” he observed.

Rep. Carolyn B. Maloney, New York Democrat and head of the committee, welcomed the message, but said the government must remain focused on “fixing the economy, putting people back to work and helping struggling families.”

Consumers are spending again after having cut back sharply during the recession. Going forward, consumer spending should be helped by a gradual pick up in jobs, a slow recovery in household wealth from recent lows and some improvement in the ability to get loans, Mr. Bernanke said.

That assessment of consumers — whose spending accounts for 70 percent of national economic activity — also appeared more upbeat. In recent weeks, Mr. Bernanke and other Fed officials have cited a litany of headwinds facing consumers, including high unemployment, rising home foreclosures and sluggish wage growth.

Fielding questions from lawmakers, Mr. Bernanke repeated the Fed’s pledge to keep interest rates at record lows for an “extended period” to aid the recovery. Rates have been at super-low levels since December 2008.

“The economy is still very, very rough,” said Rep. Maurice D. Hinchey, New York Democrat.

At some point when the recovery is firmly entrenched, the Fed will need to start boosting rates to prevent any inflation problems.

The soonest the Federal Reserve will begin raising short-term interest rates is the fourth quarter, according to 34 of the 44 economists polled in a new AP Economy Survey that debuted on Monday.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide