US recovery 'close to faltering'
US Federal Reserve Chairman Ben Bernanke says the US economic recovery “is close to faltering” and the central bank is prepared to take further steps to support it.
The economy is growing more slowly than the Federal Reserve had expected, Mr Bernanke told the congressional Joint Economic Committee. He said the biggest factor depressing consumer confidence is poor job growth.
“We need to make sure that the recovery continues and doesn’t drop back and that the unemployment rate continues to fall downward,” Mr Bernanke said.
Stocks came off their morning lows after Mr Bernanke said the Fed could adopt additional stimulus measures in the coming months. The Dow Jones industrial average had fallen more than 200 points but recovered most of those losses to be down only 64 points at midday.
Mr Bernanke offered his grim assessment after the economy barely grew in the first half of the year and it created no net jobs in August. Consumer confidence fell this summer to the lowest point since the recession. Europe’s debt crisis has also intensified.
After their September meeting, Fed policymakers warned of significant downside risks to the economic outlook. As a result, the Fed voted to shift 400 billion dollars of the Fed’s investment portfolio from short- to longer-term Treasurys to try to drive down long-term rates.
In August, the Fed said it planned to keep short-term rates at record lows until at least mid-2013, assuming the economy remained weak.
Both decisions drew three dissenting votes on the Fed’s policy committee. The three, all from regional Fed bank presidents, were the most dissents in nearly 20 years.
Republican leaders in Congress also urged Mr Bernanke and the Fed against taking action to lower rates. The Republican lawmakers and Mr Bernanke have clashed in recent months over how to invigorate the economy.
Today, Mr Bernanke wasn’t shy in offering Congress more advice: He reiterated his warning that lawmakers should not cut spending sharply while the economy is weak.
In a speech in Cleveland last week, Mr Bernanke called long-term unemployment a “national crisis” and said Congress should take further steps to address it. Mr Bernanke noted that about 45% of the unemployed had been out of work for at least six months – a level previously unseen in the six decades since the Second World War.
In that speech, Mr Bernanke said there was only so much the Fed’s interest rate policies could achieve. He said that long-term unemployment, budget deficits and the depressed housing market were three priority areas Congress should address.
Today is the first time Mr Bernanke has discussed his economic outlook with lawmakers since he delivered the Fed’s twice-a-year economic report to Congress in July. In that testimony, he laid out steps the central bank could take to support economic growth.
One of the remaining options is a third round of bond buying that would expand the Fed’s holdings of securities, already at record levels. Another is reducing the interest the Fed pays banks for their excess reserves. That step would be intended to reduce the incentive for banks to keep their money at the Fed, so they might lend more.
The central bank’s next policy meeting is scheduled for November 1-2. Because the economy is still struggling to grow, many private economists think the Fed will take some further step to try to reduce the risk of another recession.
