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Business Title: Bernanke Says ‘Nascent’ Recovery Still Requires Low Rates Feb. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. economy is in a “nascent” recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus expires. “A sustained recovery will depend on continued growth in private-sector final demand for goods and services,” Bernanke told the House Financial Services Committee today in Washington at the start of his two days of semi-annual testimony before Congress. “Private final demand does seem to be growing at a moderate pace.” The 56-year-old Fed chairman, who began his second four- year term this month, said slack labor markets and low inflation will allow the Federal Open Market Committee to keep the benchmark lending rate, which has been in a range of zero to 0.25 percent for more than a year, low “for an extended period.” He said the Fed will need to start tightening policy “at some point.” “The FOMC continues to anticipate that economic conditions -- including low rates of resource utilization, subdued inflation trends, and stable inflation expectations -- are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” he said. Bernanke’s testimony follows the Federal Reserve Board’s decision last week to raise the cost of direct loans to banks by a quarter-point to 0.75 percent. The Fed portrayed the move as a “normalization” of bank lending and said it didn’t change the outlook for the economy or monetary policy, a message the Fed chairman reiterated today. Labor Markets Bernanke cited “tentative” signs of stabilization in labor markets, such as lower job losses, a rise in manufacturing employment, and stronger demand for temporary help. “Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” Bernanke said. He said the 40 percent of the unemployed who have been without work for six months or more are a “particular concern.” Policy makers are trying to ensure a durable expansion that will start generating enough jobs to bring down an unemployment rate they forecast to end the year at 9.7 percent, above their estimate of full employment of around 5 percent. At the same time, they want to convince investors that they can start withdrawing $1.1 trillion in excess cash from the banking system in time to keep inflation at bay. “As the expansion matures, the Federal Reserve will at some point need to begin to tighten monetary conditions to prevent the development of inflationary pressures,” the Fed chairman said. “Notwithstanding the substantial increase in the size of its balance sheet associated with its purchases of Treasury and agency securities, we are confident that we have the tools we need to firm the stance of monetary policy at the appropriate time,” he said. Manufacturing Rebound Manufacturing is leading the rebound from the worst recession since the 1930s as companies prevent inventories from being further depleted and invest in new machinery and equipment The economy grew at a 5.7 percent annual pace in the fourth quarter of last year, the fastest in six years. Fed officials last month forecast growth in 2010 of 2.8 percent to 3.5 percent, and minutes of their January meeting showed they are seeking more evidence the recovery is sustainable. Bernanke said that conditions in financial markets have improved, making equity and debt financing available for larger firms. “In contrast, bank lending continues to contract, reflecting both tightened lending standards and weak demand for credit amid uncertain economic prospects,” he said. Balance Sheet The Fed has expanded its balance sheet to $2.28 trillion in an attempt to supplement credit to the economy. U.S. central bankers are finishing up a $1.43 trillion in mortgage-backed securities and housing agency debt purchase program next month. “The FOMC will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets,” Bernanke said. The actions by the central bank haven’t stimulated private bank credit. Total loans and leases by banks in the U.S. have fallen 7 percent for the 12 months ending January. Consumer loans have fallen 6.5 percent over the same period. “They want to see sustained job growth and credit growth to small businesses,” Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said before the testimony was released. “The Fed is going to keep rates low and the balance sheet big until you see those two things start recovering.” For Related News and Information:
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He's also ssaying "Bada beep bada boop" as he gets crushed by the House Finance Committee...
Day 3 of Packrat refusing to register here.
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