Federal Reserve Chairman Ben Bernanke on Friday predicted a stronger year for the US economy in 2014, saying several factors that have held back growth appear to be abating.
Americans' finances have improved and the outlook for home sales is brighter, Bernanke said. He also expects less drag from federal spending cuts and tax increases.
The combination "bodes well for US economic growth in coming quarters," Bernanke said during a speech to the annual meeting of the American Economic Association in Philadelphia.
Bernanke made a similar assessment of the economy at a Dec. 18 news conference after the Fed's last meeting. At the meeting, the Fed announced it would begin in January to reduce its monthly bond purchases from $85 billion to $75 billion, noting signs of an improving economy. The bond purchases are intended to keep long-term interest rates low and encourage more borrowing and spending.
Friday's appearance was expected to be one of Bernanke's final speeches as Fed chairman. He is stepping down at the end of this month after eight years leading the central bank.
In his speech, Bernanke said that he tried to make the Fed more transparent and accountable while at the same time combating a deep recession and severe financial crisis.
Making the Fed more transparent was an important goal for him when he took over in 2006. He cited his participation in more television interviews, his efforts to hold more town hall meetings and his visits to universities.
Bernanke also added a quarterly news conference after four of the Fed's eight policy meetings.
"We took extraordinary measures to meet extraordinary economic challenges and we had to explain those measures to earn the public's support and confidence," Bernanke said.
Bernanke said while the financial crisis has passed "the Fed's need to educate and explain will only grow."
Bernanke also used his speech to make some pointed remarks at Congress. He said "excessively tight" budget policies had been counterproductive. "With fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be," Bernanke said.
Bernanke also defended the central bank against critics who say the Fed's massive bond purchases have had little effect on jumpstarting the recovery.
"Economic growth might well have been considerably weaker, or even negative, without substantial monetary policy support," Bernanke said. He noted economic research that supported the benefits of the Fed's bond purchases.
In response to an audience question, Bernanke criticized legislation pending in Congress that would allow the Government Accountability Office to expand its audits of the Fed to look at decisions on interest rates. The GAO, the auditing arm of Congress, can currently conduct audits of the Fed. But it is prohibited from investigating its interest rate decisions.
Bernanke said passage of this legislation would be a bad idea because it would harm the Fed's independence. He said such independence is necessary to assure markets that the Fed is not being swayed by political interests.
The US Senate will vote Monday on the nomination of Janet Yellen to replace outgoing Ben Bernanke as chair of the Federal Reserve, Senate Democratic staff said Friday.
Yellen, currently the Fed vice-chair, easily passed a Senate Banking Committee vote in November, but the full Senate vote stalled amid other key business in the chamber and tangles between Democrats and Republicans over nomination procedures generally.
A vote endorsing her nomination would clear the way for Yellen to take the lead at the Fed on Feb 1, the first woman ever to lead the US central bank. At 67, Yellen has built a strong reputation as an academic economist, teaching at the University of California at Berkeley, and as a veteran policymaker at the Fed.
She is not expected to embark on any major policy shifts: she has been a close ally of Bernanke's easy money policy focused on reducing unemployment in the wake of the 2008-2009 Great Recession.
She has also been an architect of the Fed's policy of increased transparency and more open communication of its likely policy direction.
Last week, US factory activity held near a 2-1/2-year high in December and the number of Americans filing new claims for jobless benefits fell again last week, suggesting the economy was poised for stronger growth in 2014.
The strengthening fundamentals were underscored by other data showing construction spending hit its highest level in nearly five years in November.
"The underlying trends are pointing to the economy accelerating as we move through the year. Conditions seem to be coming together for a very good year," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. The Institute for Supply Management (ISM) said its index of national factory activity stood at 57.0 last month. The index had climbed to 57.3 in November, the highest since April 2011.
A reading above 50 indicates expansion. With a gauge of new orders hitting a 3-1/2-year high and inventories declining, manufacturing activity is set to accelerate early in the year.
While manufacturing accounts for only about 12 percent of the economy, it has been the key driver of recovery from the 2007-09 recession. Its continued show of strength is combining with improving fortunes in other sectors of the economy to set a foundation for sustained strong growth this year.
The brightening economic outlook prompted the Federal Reserve to announce in December that it would reduce its monthly $85 billion bond buying program by $10 billion starting this month.
A separate report from the Labor Department showed initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 339,000 last week. It was the second straight week of declines.
Though claims continue to be plagued by seasonal volatility, economists said last week's decline was consistent with an improvement in labor market conditions and was in line with other indicators showing an acceleration in job growth. A gauge of factory employment in the ISM survey last month touched its highest level since June 2011. There has also been a significant improvement in households' perceptions of labor market conditions.
"Jobless claims remain at a level consistent with improving labor market conditions. We continue to expect a 215,000 increase in nonfarm payrolls for December," said Laura Rosner, a US economist at BNP Paribas in New York. (Agencies) Employers added 203,000 new jobs to their payrolls in November and the unemployment rate fell 0.3 percentage point to 7 percent. December nonfarm payrolls data will be released on Jan. 10, with the median of forecasts from analysts polled by Reuters calling for 193,000 new jobs last month.
From employment to consumer spending and industrial production, the economy is showing remarkable strength, even as growth is expected to slow considerably in the last three months of 2013 from the third quarter's brisk 4.1 percent annual rate.
Much of the anticipated slowdown reflects a loss of output during a 16-day government shutdown in October and an unwinding of inventories after businesses aggressively accumulated stock in the July-September quarter.
The dollar was trading higher against a basket of currencies, while prices for US Treasuries were up. US stocks fell as investors booked profits after the Standard & Poor's 500 index recorded its best yearly advance since 1997. A third report from the Commerce Department showed construction spending increased 1 percent in November to its highest level since March 2009. It was the eighth straight month that construction spending increased and reflected solid gains in private construction outlays.
While the outlook for the economy is upbeat, there are some areas of concern. Jobless benefits for more than a million long-term unemployed Americans expired on Dec 28, which could hurt consumer spending and also artificially lower the jobless rate.
The emergency unemployment compensation program was introduced in 2008 during the depths of recession, and had been extended every year since then.
"The expiration of these benefits will leave 1.3 million workers without benefits, potentially causing ripples through the entire economy," said Jay Morelock, an economist at FTN Financial in New York. (Agencies) By Martin Crutsinger
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Original headline: 2014 could be better year for US economy: Bernanke
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