Federal Reserve Chairman Ben Bernanke cast a
bleak view of the US economy in congressional testimony Tuesday, but
gave little indication of concrete action by the central bank to
The central bank chief said the economic recovery had decelerated in 2012 and continues to be held back by high unemployment, worries about the health of the eurozone and the US political situation.
Bernanke indicated the Federal Reserve was willing to take further action to bolster the US economy, but did not provide specific details about what it might do. Minutes of the Fed's last meeting indicated the central bank was discussing the possibility of further stimulus.
When questioned by lawmakers during testimony to a Senate committee, Bernanke expressed reluctance to institute further quantitative easing, as it last did in 2010 to buy longer-term government bonds as a way of injecting money and investment into the economy.
He stressed such tools "shouldn't be used lightly," but noted, "my view is these tools still do have some capacity to support the economy." The Fed would weigh whether further stimulus was needed based in part on whether the unemployment rate continued to remain stalled.
"The reduction in the unemployment rate seems likely to be frustratingly slow," the central bank head said in the first of two days of congressional testimony. He said unemployment was likely to remain above 7 per cent until 2014.
He also warned lawmakers that the country could face a "shallow recession" if they do not work to prevent the so-called "fiscal cliff," which has the nation on track to see its federal budget deficit slashed by 4 per cent of gross domestic product in 2013 through sharp spending cuts and major tax hikes.
Bernanke said the US must find a medium-term deficit plan, but also take into consideration the fragile economy.
"That recovery could be endangered by the confluence of tax increase and spending reductions that will take effect early next year if no legislative action is taken," he said.
"The most effective way that the Congress could help to support the economy right now would be to work to address the nation's fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery," he said.
Economic growth decreased to 2 per cent in the first quarter and slowed even further in the second quarter after growing at a 2.5-per-cent rate in late 2011, while unemployment had stagnated at around 8 per cent, Bernanke noted.
In its report following a meeting last month, the Fed lowered its growth forecasts in 2012 to between 1.9 and 2.4 per cent and 2.2-2.8 per cent in 2013.
Uncertainty in Europe has weighed on US manufacturing, and continues to threaten to spillover onto the broader global economy with the threat of a worsening situation weighing on the economic outlook, he said.
"Financial strains associated with the crisis in Europe have increased since earlier in the year, which ... are weighing on both global and domestic economic activity," he said.
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