Bernanke: U.S. Economy Expanding Despite Global Slowdown

25 January 2012

Ben Bernanke says the Federal Reserve Board will continue to hold an accommodative stance on monetary policy as the U.S. economy works to recover.

The U.S. economy is continuing to expand moderately despite some slowing in global growth, according to Federal Reserve Chairman Ben Bernanke.

“There’s certainly been some encouraging news recently,” Bernanke told reporters in Washington January 25. “We’ve seen slightly better performance in the labor market. Consumer sentiment has improved. Industrial production has been relatively strong.”

Despite these positive signs, Bernanke said, the U.S. economy has seen mixed results in other areas, such as retail sales, as it continues to face headwinds coming from Europe due in part to the sluggish global economy.

The chairman spoke following a meeting of the Federal Open Market Committee, the central bank’s policymaking arm, during which members discussed economic conditions and the next steps for U.S. monetary policy.

Bernanke said the committee projected U.S. gross domestic product to continue to be moderate during coming quarters, coming in between 2.2 percent and 2.7 percent in 2012, increasing to between 2.8 percent and 3.2 percent for 2013 and 3.3 to 4.0 percent for 2014. He said strains in global financial markets “continue to pose significant downside risks” to the outlook for growth.

He said that while overall labor market conditions have improved, the unemployment rate remains elevated.

“In light of the anticipated modest pace of economic recovery, the committee expects that, over coming quarters, the unemployment rate will decline only gradually,” he said. Participants projected that by the end of 2012, unemployment will have dipped slightly to between 8.2 percent and 8.5 percent. With economic growth expected to pick up over time, the unemployment rate is expected to decline to between 6.7 percent and 7.6 percent by the end of 2014.

The Open Market Committee, charged with fostering maximum employment and price stability, sets the U.S. federal funds rate, which is the rate banks are charged for overnight loans.

The committee set a goal for inflation, which is influenced by the Federal Reserve’s monetary policy, of no more than 2 percent. A higher inflation rate would reduce the public’s ability to make accurate long-term economic and financial decisions, Bernanke said, while a lower rate would elevate the risk of falling into deflation. He said the target should help foster price stability and control long-term interest rates, enhancing the committee’s ability to promote maximum employment.

The committee projected the inflation rate will be between 1.4 percent and 1.8 percent for 2012 and between 1.5 percent and 2 percent through 2014.

Bernanke also said the committee voted to keep the target range for the federal funds rate at zero to 0.25 percent, and that economic conditions are likely to warrant exceptionally low levels for the rate at least until late 2014.

The chairman stressed that the committee’s economic and policy projections are subject to future revision in light of evolving economic and financial conditions, and that the Federal Reserve Board will continue to monitor economic conditions and will carefully adjust its policies accordingly.

Bernanke’s remarks came at the start of the five-day World Economic Forum in Davos-Klosters, Switzerland.