Bernanke More Optimistic on Economy, Still Concerned About Jobs

Federal Reserve Chairman Ben Bernanke told Congress Friday that there's increasing evidence that a "self-sustaining" economic recovery is taking hold, but he said the Fed's $600 billion Treasury bond-buying program is still needed because it will take years for unemployment to drop to more normal levels.

In prepared testimony to the Senate Banking Committee, Bernanke offered a more optimistic outlook, saying the economy should grow more strongly this year as consumers and businesses boost their spending.

However, he said that even with the expected improvements, it could still take four to five years for unemployment to drop to a historically normal rate of around 6 percent.

Bernanke spoke one hour before the government released a disappointing employment report. Employers added only 103,000 jobs in December. The unemployment rate fell to 9.4 percent partly because people gave up looking for jobs. The report suggested only slow healing in the jobs market. Many economists had forecast much bigger job gains, signaling that a crucial corner had been turned in the labor market recovery.

The Fed chief defended the central bank's much criticized decision in November to start buying $600 billion in Treasury's through June. And, he gave no hint that the Fed would change its course.

The bond purchases are designed to boost the economy by lowering interest rates and lifting stock prices.

The program has been criticized by Republicans in Congress and some Fed officials who contend it will do little to help the economy and could hurt it by unleashing inflation and speculative buying on Wall Street. The move heightened tensions with trading partners including China, Germany and Brazil. They complained it was really a scheme to push down the value of the dollar, giving U.S. exporters a competitive edge.

Bernanke predicted that the overall pace of the economy will be "moderately stronger" this year and said the Fed recently has seen "increased evidence that a self-sustaining recovery" is taking place.

Factories are cranking up production. The service sector is growing at its fastest pace in more than four years. Fewer people applied for unemployment benefits over the past month than in any other four-week period in more than two years. Consumers are spending more freely, and a payroll tax cut is likely to boost their activity further.

However, there are risks - namely a weak jobs market.

"Notwithstanding these hopeful signs ... employers reportedly still reluctant to add to payrolls, considerable time likely will be required before the unemployment rate has returned to a more normal level," Bernanke said. "Persistently high unemployment, by damping household income and confidence could threaten the strength and sustainability of the recovery," he warned.

Earlier this week, Fed officials said they think Congress' tax-reduction plan will help bolster the economy this year and should spur more hiring.

The tax package extends tax cuts enacted by President George W. Bush in 2001 and 2003, gives a pay raise to working Americans by lowering the Social Security payroll tax, provides tax breaks to businesses and extends unemployment benefits. The package has a price tag of $858 billion over two years.

Bernanke also argue for Congress and the White House to come up with a long-term plan to reduce the government's trillion-plus-dollar budget deficits. However, he warned them not to slash spending or boost taxes now because the economy is too fragile.

President Barack Obama's debt commission at the end of last year failed to reach a consensus on what to do about exploding deficits. Over the coming decade government deficits are estimated in the $10 trillion range. If Congress fails to come up with a plan to curb those deficits in the long run, the economy could be hurt, Bernanke said. Big deficits could force investors to demand more returns to loan out their money to the government. Interest rates could soar, crimping spending and slowing the economy.

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sgentilejr

YOU are the economy. Not the bankers and not the politicians.
How YOU spend your money can either create jobs or give jobs away. When YOU buy imported products you are giving away USA jobs and our nation's wealth.
ONLY YOU can create jobs, if YOU buy made in the USA items. Example: Did you know Colgate and UltraBrite toothpaste are now both Made in Mexico? Did you know J&J BandAids are made in Brazil? You could buy other brands that are made here IF you opened your eyes and looked.
But Hell no____ you did not know they are made in Mexico and Brazil because you are too freaking lazy to look at the labels to see where anything you buy is made. And that is why the real problem is___YOU.

January 08 2011 at 2:11 PM Report abuse rate up rate down Reply
1 reply to sgentilejr's comment
ultraz2

If people are having a hard time paying their bills now, they definately will default on credit cards and mortgages with higher intrest rates.

January 07 2011 at 1:54 PM Report abuse +1 rate up rate down Reply
ultraz2

Big Wall Street Banks want raise intrest rates, the Fed needs to ignor these big banks and keep rates low in order to avoid a DEPRESSION.

January 07 2011 at 1:46 PM Report abuse +1 rate up rate down Reply
2 replies to ultraz2's comment
rspray8894

http://www.moneynews.com/StreetTalk/BernankeRecoveryTooSlowtoLowerJoblessRate/2011/01/07/id/382146?s=al&promo_code=B6B4-1

January 07 2011 at 2:18 PM Report abuse rate up rate down Reply
ultraz2

If intrest rates soar, the USA National Debt will feed on the rate hikes and avalanch into a USA National Debt Bankruptcy and the Mother of all Depressions. 30 Year Mortgage Intrest Rates need to go down to between 2 1/2 and 3 1/2 percent for the next two to three years to bring back the housing market. After that they need to increase slowly/ gradually over a 48 month period.

January 07 2011 at 1:44 PM Report abuse +1 rate up rate down Reply
rspray8894

MOVE MONEY AROUND THAT DID NOT EXCIST IN THE FIRST PLACE.....

January 07 2011 at 12:03 PM Report abuse -1 rate up rate down Reply
bohemianacres

So, we are between a rock and a hard place. Increase the benefits of one, and the opposite is hindered. Helping some steps on others, at least economically. It seems the only optimistic solution is to raise the debt ceiling, that artificial bottom line on the imaginary accounting sheet. Who cares anyway what it will do to the future. The only thing such actions will do in the future is make a trillion look like pocket change, when we think in terms of quads and quints trillions.

January 07 2011 at 11:10 AM Report abuse rate up rate down Reply
jkennedy806

What a crock of crap

January 07 2011 at 10:40 AM Report abuse +2 rate up rate down Reply