REALTOR NEWS
WASHINGTON – Feb. 4, 2011 – Federal Reserve Chairman Ben Bernanke provided his most upbeat economic outlook in many months Thursday but cautioned that the economy is still in a “deep hole,” and it will take several years for unemployment to return to a normal level.
“We have seen evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” Bernanke said in a rare speech at the National Press Club.
Improved business and consumer confidence, low interest rates and looser credit conditions seem “likely to lead to a more rapid pace of economic recovery in 2011 than” last year, he said.
Bernanke suggested that last fall’s uncertainty – fueled by the European debt crisis – has mostly dissipated. Risks that the nation might slip back into recession prompted the Fed to launch a controversial initiative in November to buy $600 billion in Treasury bonds by mid-2011 to lower long-term interest rates and stimulate growth.
Bernanke partly credited that stimulus for the improvement. He noted consumer spending increased at an annual rate of more than 4 percent in the fourth quarter, while business investment in equipment and software grew robustly last year. A batch of economic reports Thursday echoed the upbeat theme, including surging factory orders and lower jobless claims.
Yet while taking written questions from reporters, Bernanke said, “The economy ... is still in a deep hole. We’re still far from where we want to be.” Growth, he noted, “has not been fast enough” to significantly lower December’s 9.4 percent jobless rate.
“It will take several years before the unemployment rate has returned to a normal level,” he said. “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”
Bernanke also reiterated that Congress must plan now to slash the $14 trillion national debt, which threatens to drive up interest rates, squelch private investment and eventually lead to “broader financial turmoil.”
But he assailed Republican threats not to raise the U.S. debt limit without deep spending cuts. The nation ultimately could default on its debt, he said. “The implications for the financial system ... and for the economy would be catastrophic.”
The Fed chairman called higher oil prices “a negative for consumers” and spending. But he added that rising oil, food and other commodity prices so far have not pushed up inflation, which he said was “quite low.” That suggests the Fed will likely complete its $600 billion in bond purchases by June to keep a lid on interest rates.
Bernanke bristled at concerns that the Fed’s purchases have helped raise commodity prices by driving investments to those assets from low-yielding U.S. bonds. He said strong growth in emerging markets caused the higher prices.
© Copyright 2011 USA TODAY, a division of Gannett Co. Inc., Paul Davidson.
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