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Bernanke optimistic of recovery, but urges vigilance

Federal Reserve Chairman Ben Bernanke testified before Congress’ Joint Economic Committee on Wednesday.

Associated Press

Federal Reserve Chairman Ben Bernanke testified before Congress’ Joint Economic Committee on Wednesday.

WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that he has confidence the unfolding economic recovery will have staying power, although it won't be strong enough to bring quick relief to high unemployment.

Bernanke, testifying before Congress' Joint Economic Committee, also once again called on lawmakers and the White House to come up with a plan to whittle down record-high budget deficits.

Even though sizable deficits right now are "unavoidable" given the damage wrought by the recession, the persistence of red ink raises risks to the country's long-term economic health, he said.

A credible plan to pare the deficit could provide the economy with benefits in the near term, including lower longer-term interest rates and increased consumer and business confidence, Bernanke told lawmakers.

"Addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult," he warned.

On the economy, Bernanke seemed slightly more optimistic that the fledgling recovery will keep going after massive government stimulus fades later this year. Incoming economic barometers suggest that growth in demand by consumers and businesses "will be sufficient to promote a moderate economic recovery in coming quarters," he said.

In fact, the odds of a "double-dip" recession, where the economy would start shrinking again, have receded, Bernanke said. "We're seeing some building momentum," he observed. "So it looks like we're on a path to moderate recovery and that the risk of a double-dip, while certainly not negligible, is certainly less than it was a few months ago."

Fielding questions from lawmakers, Bernanke repeated the Fed's pledge to keep interest rates at record lows for an "extended period" to aid the recovery. Rates have been at super-low levels since December 2008.

"The economy is still very, very rough," said Rep. Maurice Hinchey, D-N.Y.

At some point when the recovery is firmly entrenched, the Fed will need to start boosting rates to prevent any inflation problems.

The soonest the Federal Reserve will begin raising short-term interest rates is the fourth quarter, according to 34 of the 44 economists polled in a new AP Economy Survey that debuted Monday.

Businesses, meanwhile, have boosted spending on equipment and software at a solid pace and factories are benefiting from stronger demand for U.S. exports, Bernanke noted. Improved financial conditions are also helping out the economy.

However, problems still remain.

Bernanke said weakness in the housing and commercial real estate sectors is putting "significant restraints" on the pace of the economic recovery. And the poor fiscal conditions of many state and local governments have led to continuing cutbacks in workers, another force that will hold back the recovery, he said.

On the jobs front, Bernanke was encouraged by the 162,000 jobs added in March, the most in three years. However, the moderate pace of the economic recovery means that the 8 million-plus jobs lost by the recession won't quickly return. Bernanke said it will take a "significant amount of time" to restore those positions.

Fed survey shows widespread gains

The economic recovery is spreading to most parts of the country, the Federal Reserve reported in its latest periodic regional survey. Merchants are seeing better sales and factories are boosting production, but many companies are still wary of ramping up hiring.

Prices rise slightly, but incomes slide

Consumer prices edged up 0.1 percent in March, the Labor Department said, while core inflation, which excludes food and energy, was unchanged. Despite the good inflation news, household budgets remained under pressure as hourly earnings fell again.

Retail sales up for third straight month

Retail sales rose for the third straight month in March as better weather and auto incentives brought out shoppers in force. Sales rose 1.6 percent last month, the Commerce Department said Wednesday, up from February's revised 0.5 percent gain.

Inventory increase

a sign of confidence

U.S. businesses increased inventories 0.5 percent in February, the second straight monthly gain, the Commerce Department said. The result, a positive sign that companies expect further sales gains, topped analysts' expectations of a 0.4 percent gain.

Bernanke optimistic of recovery, but urges vigilance 04/14/10 [Last modified: Wednesday, April 14, 2010 10:32pm]
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