Fed Chair Frustrated U.S. is Years Away from Full Employment

By Eliza

Jun 22, 2011 5:09pm

ABC News' Tahman Bradley Reports:

At just the second official Fed chairman news conference in history, Ben Bernanke said that the Fed believes that U.S. economic growth will pick up going into 2012 but at a somewhat slower pace than originally thought. 

"One way to think about it is that maybe some of the headwinds that have been concerning us, like, you know, weakness in the financial sector, problems in the housing sector, balance sheets and deleveraging issues, some of these headwinds may be stronger or more persistent than we thought," he said.  

Even though recovery is slower than everyone wants, Bernanke did not announce any new Fed plans to boost the economy. 

Bernanke said it's "very frustrating" that the U.S. is still some years away from full employment.  "At some point, if growth picks up as we anticipate, job numbers will start getting better. We're still some years away from full employment in the sense of 5 1/2 percent, say. And that's of course very frustrating because it means that many people will be out of work for a very extended time," he said. 

The factors contributing to the slow economic recovery are likely temporary and the Fed expects the pace of economic recovery to pick up over coming quarters, Bernanke told reports.  

Higher food and energy prices, the aftermath of the tragic earthquake and tsunami in Japan, which has caused disruptions in local supply chains, have slowed the recovery.  "However," said Bernanke, "some moderation in gasoline prices is now a prospect and the effects of the Japanese disaster and manufacturing output are likely to dissipate in coming months."

Bernanke took questions following a meeting of the Fed's decision-making body.  According to a readout of the meeting, the Fed decided to keep short-term interest rates near zero for several more months and stick with plans to end the purchase of $600 billion of U.S. Treasurys on June 30.  

Bernanke said that the recovery has hit a snag but that the Fed won't be raising interest rates for an extended period of time.  Because of the state of the economy, the Fed is at least two or three meetings away from discussing raising interest rates, he added.

"I think the thrust of extended period is that we believe we're at least two or three meetings away from taking any further action — and I — and I emphasize 'at least,'" he said. 

"But depending on how the economy evolves, and inflation and unemployment, it could be, you know, significantly longer. It'll depend on how the economy and the economic outlook changes. If we do get both improved job creation and inflation close to our — close to or even above our mandate — consistent level, then that would be a sign that we need to consider beginning an exit process."

He added, "But we're not there at this point."

Bernanke said he hopes that congressional negotiators take a longer-term view as they discuss budget cuts, and that in light of the weak economic recovery, it is best not to have sudden and sharp fiscal consolidations.

"By taking a long-run perspective, we can help the economy by reducing the risk that interest rates might rise suddenly. We may help increase confidence on the part of households and businesses," said Bernanke.

The chairman described the crisis plaguing the economy of Greece as "very difficult."   "I think the Europeans appreciate the incredible importance of resolving the Greek situation. If there were a failure to resolve that situation, it would pose threats to the European financial systems, the global financial system and to European political unity, I would — I would conjecture as well."

Describing the housing sector as important to a recovery, Bernanke outlined some of the problems still facing home sales in the U.S. He said the market slump continues because credit standards for mortgages have tightened up and there is uncertainly among consumers about their employment situation and whether or not they can take a chance to buy a house. He said the Fed is trying to address these problems in a number of ways.

"Of course our monetary policy is intended to try promote employment and income gains, which of course will help housing demand. As regulators, we have recently issued cease-and-desist orders to servicers who try to improve servicing practices. We work with our regulated banks to ask them to do modifications where appropriate and to manage their REO real estate — owned real estate in a economy-supportive way."

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