Bernanke cautiously optimistic for economic growth in 2010
The economy is likely to expand moderately in 2010, Federal Reserve Chairman Ben S. Bernanke said Monday, but his guardedly optimistic assessment for growth contained no hints that the central bank is looking to raise interest rates any time soon.
"Economic forecasts are subject to great uncertainty, but my guess is that we will continue to see modest economic growth next year," Bernanke told the Economic Club of Washington in a speech. That, growth he said, would be "sufficient to bring down the unemployment rate, but at a slower pace than we would like."
But Bernanke also laid out the factors that could limit the recovery, suggesting he still sees plenty of risk factors threatening the economy's performance. "The economy confronts some formidable headwinds that seem likely to keep the pace of expansion moderate," he told the group of Washington-area business leaders, ticking off tight credit conditions, the weak job market, and Americans' reluctance to spend money when they fear for their job security.
He also showed little concern about inflation rearing its head, either now or in the future. Answering the question of whether Fed actions will lead to higher inflation, he said point blank that "The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so," and added that "inflation could move lower from here."
With his forecast of a sluggish recovery, description of continuing economic challenges, and subdued talk about inflation, the comments suggest that Bernanke is in no hurry to raise interest rates or take other aggressive action to end the Fed's support for economic growth. A better-than-expected report on employment Friday led some speculation in financial markets that the Fed could move sooner than thought to raise its target interest rate above its current near-zero level, or take other steps to drain the money it has pumped into the financial system.
Indeed, in a question and answer period, he was asked point blank about plans for interest rates. "Well, they can't go much further down," he said with a smile.
He elaborated some, discussing next week's meeting of the Fed's policymaking committee, which will likely include discussion of the evidence of the improving economy and whether to change language in statements from recent meetings that the Fed will keep rates low for "an extended period."
"Right now we are still looking at the extended period," Bernanke said Monday. He added, "obviously, there's been some signs of strength recently. We'll want to factor that in as we talk about this next week."
In a lighter moment, Carlyle Group co-founder and Economic Club President David Rubenstein asked "What is the best thing about being chairman of the Federal Reserve Board?"
The answer: "I get to go through the security lines at the airport much more quickly."
Separately, Federal Reserve Bank of New York President William C. Dudley delivered a speech of his own in which he suggested that the Fed should be more proactive than it has been in the past in trying to fight asset bubbles. The Fed failed to take action to curtail the rise of a giant stock market bubble in the late 1990s, nor the housing and credit bubbles of the 2000s, both of which led to recessions.
Speaking at Columbia University, Dudley said that "it might be appropriate" for the Fed and other regulators "to monitor and limit the buildup in leverage at the major securities firms and the leverage extended from these firms to their clients and counterparties." as a tool to rein in the excessive lending that often accompanies financial bubbles.
Source: Washington Post
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