Bernanke Warns Jobs Recovery Could Take Years, Urges Action on Deficit Problems

Jan 7, 2011 10:59am

ABC News’ Matthew Jaffe reports: Federal Reserve chairman Ben Bernanke today told Congress that if the pace of job creation continues at December’s levels – when 103,000 jobs were added to payrolls – then the nation will not see “sustained declines in the unemployment rate.”   At a Senate Budget Committee hearing Friday morning, the panel’s top Republican Jeff Sessions contended that today’s jobs report represented “treading water” and produced “not really a number that we can celebrate.” In response, Bernanke said, “It’s about what we expected, but as you say it’s not a number that’s going to – if we continue at this pace you’re not going to see sustained declines in the unemployment rate.” Overall Bernanke said the Fed sees improvements in consumer and business spending, but remains concerned about the housing sector and the jobs market. “We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” he said in his opening remarks. “However the housing sector remains depressed, as the overhang of vacant houses continues to weigh heavily on both home prices and construction, and non-residential construction is also quite weak. Overall the pace of economic recovery seems likely to be moderately stronger in 2011 than it was in 2010.” Continuing his cautious tone on the jobs situation, Bernanke told the panel that recently “conditions in the labor market have improved only modestly at best.” “After the loss of nearly 8 ½ million jobs in 2008 and 2009, private payrolls expanded at an average of only about 100,000 per month in 2010 – a pace barely enough to accommodate the normal increase in the labor force and, therefore, insufficient to materially reduce the unemployment rate,” he said. “On a more positive note, a number of indicators of job openings and hiring plans have looked stronger in recent months, and initial claims for unemployment insurance declined through November and December.” “Notwithstanding these hopeful signs, with output growth likely to be moderate in the next few quarters and employers reportedly still reluctant to add to payrolls, considerable time likely will be required before the unemployment rate has returned to a more normal level.” The central bank boss warned that “it could take four to five years for the job market to normalize fully.” An additional cause for concern for the Fed – something that Bernanke has warned Congress about time and time again – is the nation’s soaring deficits. “It is widely understood that the federal government is on an unsustainable fiscal path,” he said. “Yet, as a nation, we have done little to address this critical threat to our economy. Doing nothing will not be an option indefinitely – the longer we wait to act, the greater the risks and the more wrenching the inevitable changes to the budget will be.” Those concerns were echoed this morning by the Budget panel’s Democratic chairman and ranking Republican. “Facing up to the debt problem is something we must do and we must do it together,” said Democrat Kent Conrad of North Dakota. Sessions, the panel’s top GOP senator, was more adamant. “We are on a path that is unsustainable. The only question is how much road is left between us and the edge of the cliff,” Sessions said. “You can only live beyond your means for so long. Eventually the bill comes due.”

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