ABC News’ Matthew Jaffe reports: In a wide-ranging three-hour appearance before Congress today, Federal Reserve chairman Ben Bernanke offered a typically mixed outlook on the state of the nation’s economy.
“The economic recovery that began in the middle of 2009 appears to have strengthened in the past few months, although the unemployment rate remains high,” Bernanke told the House Budget Committee.
On the plus side, the central bank boss said gains in consumer and business spending have been “encouraging” and inflation remains under control. But on the other hand, Bernanke warned, it will take years for the jobs market to recover and the government has yet to confront to the looming debt problems.
“With output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level,” he cautioned. “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”
“It could take quite a long time,” he said later.
Right now, he noted, people are out of work due to cyclical business cycles, but that could change if the unemployment crisis lasts too long.
“I would say that the bulk of it is still cyclical. The risk is if it goes on long enough it will start becoming structural as people lose their skills and their connection to the labor force.”
To date, Bernanke touted, the Fed’s quantitative easing programs have created an estimated 3 million jobs, with the recent “QE2” program accounting for 600,000 of them, according to “simulation studies” the central bank has conducted.
“The potential impact is significant,” he said.
The Budget panel’s chairman Paul Ryan, seizing on Bernanke’s first appearance before the GOP-controlled House, quickly went on the attack in an attempt to grill the Fed boss on inflation and debt, at one point holding up a copy of the Wall Street Journal with a headline that read “Inflation Worries Spread”.
“You’re going to see inflation after it’s already launched,” Ryan told Bernanke. Then, minutes later, Ryan exclaimed, “We have a tidal wave of debt on our hands.”
On the country’s rising red ink, Bernanke reiterated his desire for Congress and the Obama administration to take action. In sobering comments, the Fed boss noted that eye-opening debt projections from the Congressional Budget Office do not account for the economic effects of soaring deficits since ultimately creditors would stop lending to a government with debt “that is rising without limit.”
“Diminishing investor confidence that deficits will be brought under control would ultimately lead to sharply rising interest rates on government debt and, potentially, to broader financial turmoil,” he said.
“If we demonstrate that we have the political will,” he suggested later, “I think the markets will be quite forgiving.”