Founded in 2010

News & Entertainment for Mason City, Clear Lake & the Entire North Iowa Region

Bernanke calls for caution as economy improves

By Don Lee, Tribune Washington Bureau –

WASHINGTON — U.S. consumers and the economy started the year with more financial pep than previously thought, but Federal Reserve Chairman Ben S. Bernanke cautioned that economic growth probably would be modest through the rest of this year.

The nation’s recovery from the brutal recession has been “uneven and modest,” the Fed chief told Congress on Wednesday, and is being hampered by tight credit for borrowers, a depressed housing market, budget-strapped governments and uncertainties in resolving the European sovereign debt crisis.

Bernanke, in presenting his semiannual report on monetary policy and the economy, acknowledged recent improvement in the labor market, including the nearly 260,000 private-sector jobs added in January.

But he said that Fed policymakers did not expect “further substantial declines” in the jobless rate this year and that the sharp drop in the unemployment rate to 8.3 percent in January from 9.1 percent last August was somewhat out of sync with the moderate pace of growth.

“The job market remains far from normal,” he told the House Committee on Financial Services. He said he remains especially concerned about near-record numbers of the long-term unemployed, whose skills tend to erode over time.

Bernanke had a more sanguine view of the recent increase in oil prices, which he said will pinch consumer pocketbooks, but only temporarily.

He said inflation over the long haul probably will remain subdued, presumably at or below the Fed’s 2 percent target.

He blamed the jump in crude prices on supply constraints stemming from tensions with Iran and elsewhere, but declined to say whether the U.S. should dip into the nation’s strategic oil reserves, as some Republicans in Congress have urged.

Bernanke’s remarks didn’t seem to inspire confidence on Wall Street. The Dow Jones industrial average opened moderately higher after breaking through 13,000 the day before, but then retreated. It closed down 53.05 points at 12,952.07.

Kevin Cummins, an economist at UBS Investment Research, said investors might have been hoping Bernanke would suggest that further monetary stimulus was on the way. But the Fed chief gave no such hint.

Investors were cheered earlier by a Commerce Department report that showed economic output in the fourth quarter grew at a 3 percent annual rate, slightly higher than the 2.8 percent initially estimated. Gross domestic product, the broadest measure of economic output, increased at a 1.8 percent pace in the third quarter.

More significantly, officials revised sharply upward their data on personal income.

The new report said that inflation-adjusted, after-tax incomes rose 0.7 percent in the third quarter, as opposed to shrinking 1.9 percent as previously thought. Incomes increased 1.4 percent in the fourth quarter, nearly double the first estimate.

With the higher income figures, the fourth-quarter personal savings rate — what’s left after taxes and expenses — was revised to 4.5 percent from 3.7 percent.

“As a result, household finances look to be on a much firmer footing than we were previously led to believe,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a research note.

The Commerce Department’s GDP report was released after the Fed had prepared its monetary and economic report.

In his prepared remarks to lawmakers, Bernanke cited flat household income and wealth last year as among the factors for the continuing weak “fundamentals” that support spending. Consumer spending accounts for more than two-thirds of U.S. economic activity.

Final sales, which measure actual demand, rose slightly more than 1 percent in the fourth quarter, the Commerce report said.

The bulk of the GDP growth came from an inventory buildup, as companies increased their stockpiles amid signs of stronger demand.

But a bigger-than-usual increase in inventories in one quarter tends to lead to slower activity in the next. Fed policymakers are projecting GDP growth of 2.2 percent to 2.7 percent this year.

That moderate pace isn’t likely to bring down the unemployment rate much, assuming that productivity and the workforce population grow at average rates and more of the unemployed flood back into the job market.

Looking ahead, one of the biggest drags on the economy is budget-strapped governments. In the fourth quarter, reduced government spending sliced the GDP growth rate by nearly a full percentage point.

0 0 votes
Article Rating
Notify of

Inline Feedbacks
View all comments

Even more news:

Need help with your website?
Call your local professional,
Breakthrough Web Design:
or go to

Copyright 2022 – Internet Marketing Pros. of Iowa, Inc.
Would love your thoughts, please comment.x