Bernanke sees ‘moderate’ growth for the economy; jobs progress remains slow

Bernanke predicted economic growth in 2010 would be “moderate,” slowed by continuing high unemployment and a lack of lending by banks.

{mosads}While Bernanke said there are clear signs that the economy has emerged from last year’s crisis, he also said there were reasons to think economic growth would not be robust in 2010.

“The flow of credit remains constrained, economic activity weak and unemployment much too high,” Bernanke said in a speech at the Economic Club of New York.

Bernanke also said that future setbacks are possible.

The assessment comes as Democrats in both chambers of Congress make plans to move bills aimed at creating jobs.

Unemployment hit 10.2 percent in October and is expected to continue to grow for at least the next few months.

That has spooked lawmakers, who must go to the polls for the midterm elections in less than a year. President Barack Obama on Friday announced plans for a White House summit on jobs.

Bernanke said government actions have clearly helped the country emerge from last fall’s financial crisis.

“I think it is fair to say that policymakers’ forceful actions last fall, and others that followed, were instrumental in bringing our financial system and our economy back from the brink,” Bernanke said.

While supporters of the Fed’s approach cite the 3.5 percent jump in gross domestic product in the last quarter as proof of progress, skeptics point to high unemployment and the dollar’s declining value as evidence the unprecedented actions by the Fed have not been enough.

Bernanke conceded those concerns in his speech Monday, and he stressed the Fed was doing what it could to correct them. He noted the Federal Reserve was playing an active role in bolstering consumer lending, and he explained the board would continue to function as a “bank supervisor” to encourage the flow of credit.

Bernanke also said he believes the economic headwinds are based on more than temporary factors.

Bernanke noted that job losses in the recession have been at the worst levels since World War II. Besides cutting jobs, employers have reduced hours for those workers still on the job. The average workweek for production and non-supervisory workers has fallen to 33 hours, which Bernanke said is the lowest level since World War II.

“The best thing we can say about the labor market right now is that it may be getting worse more slowly,” Bernanke said.
Job creation could be slow even as the economy recovers for a number of reasons, Bernanke said.

He noted that employers may decide to convert part-time workers to full-time before adding new hires. They may also decide to add overtime work before hiring new workers.

The difficulties businesses continue to face in getting credit could also hamper efforts to hire, he said.

This all leads to questions about how quickly the economy will recover, Bernanke said.

“How the economy will evolve in 2010 and beyond is less certain,” he said. “My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely.

“However, some important headwinds — in particular, constrained bank lending and a weak job market — likely will prevent the expansion from being as robust as we would hope.”

Bernanke made it clear the Fed would not raise interest rates, now near zero, for the foreseeable future, saying they would remain very low for an “extended” period of time.

Obama has appointed Bernanke to another four-year term as Fed chairman, and the Senate is expected to vote on his confirmation before the end of January.

While Bernanke is expected to win confirmation, the Fed has seen its popularity wane with the crisis, and legislation to take away some of the Fed’s regulatory powers has been introduced by Senate Banking Committee Chairman Chris Dodd (D-Conn.).