Bernanke cautious on America’s recovery

WASHINGTON: Federal Reserve chairman Ben Bernanke offered a tempered view of the US economy, pouring cold water on the notion recent upbeat signs herald a stronger recovery.

Bernanke told Congress that unless growth accelerated, the unacceptably high US unemployment rate would not keep dropping. But he stopped short of signalling further Fed bond purchases, dashing the hopes of some traders in financial markets who were betting on more monetary stimulus.

“The job market is far from normal,” Bernanke said. “Continued improvement… is likely to require stronger growth in final demand and production.”

The swift decline in the US unemployment rate in recent months, to a three-year low of 8.3% in January from 9.1% in August, has surprised economists both within and outside the Fed, given the economy’s relatively soft performance.

Last year, the economy expanded only 1.7%, although the fourth quarter proved to be the strongest.

“The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that timeframe at or below its longer-term trend,” Bernanke told the US House of Representatives Financial Services Committee.

Bernanke’s tentative outlook knocked the Dow Jones Industrial Average below the symbolic 13,000 level it had closed above on Tuesday. The Dow closed off 53 points, or 0.4%. It is up 2.5% on the month.

Stock prices had been marching higher all year on optimism about gathering economic momentum.

“Bernanke implied that the Fed was no closer to QE3… Investors were disappointed,” said Cary Leahey of Decision Economics. — Reuters