Bernanke: U.S. On Long Road To Economic Recovery

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Fed Chairman Ben Bernanke said Thursday that while the U.S. economy appears to be recovering from its collapse during the 2008 financial crisis, it still has a long way to go, and that the recovery will move slowly through the coming months.

Speaking before the United States Senate Committee on Banking, Housing and Urban Affairs, the Fed chief repeated remarks he made Wednesday before the House Committee on Financial Services, saying that low inflation expectations will keep the target for the federal funds rate at near zero levels.

Bernanke also touched on problems in the labor market, saying that although the market's deterioration seems to be slowing, weaknesses in the job market still remain in light of decreases in job losses and a modest January rise in full-time manufacturing jobs.

"Notwithstanding...positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce," he said in prepared remarks.

"Of particular concern, because of its long-term implications for workers' skills and wages, is the increasing incidence of long-term unemployment; indeed, more than 40 percent of the unemployed have been out of work six months or more, nearly double the share of a year ago."

Concerns about the health of the labor market were fueled this morning by government data showing jobless claims rose last week to 496,000, marking an increase for a second straight week.

He pointed out later in the testimony that the Fed expects the unemployment rate to fall to 6.5-7.5 percent by the end of 2012, well above the "long-term sustainable rate" of five percent.

Speaking on inflation, Bernanke said that slack in the labor markets and a flattening of oil prices will keep inflation subdued for some time.

Bernanke also added that holding mortgage backed securities off the market will hold mortgage rates down, though the Fed does not know the direct effect of stopping the Fed's mortgage backed securities purchases, which are set to run down in March.

The central bank chief also defended the Independence of the Fed saying that stripping it of its regulatory authority would be a mistake.

The central bank chief also spoke on concerns about the country's budget deficits, saying that long-term budget deficits could not, and should not be sustained, saying that ignoring the deficit problem would have wide spread negative effects on the economy.

Elsewhere in his testimony, Bernanke touched on the Fed's announcement last week to raise the discount rate to 0.75 percent, and the decision to shorten the maximum term of discount window loans to overnight for most banks, saying that improved financial conditions are limiting the need for Fed assistance.

"These changes, like the closure of most of the special lending facilities earlier this month, are in response to the improved functioning of financial markets, which has reduced the need for extraordinary assistance from the Federal Reserve," he said.

The Fed chief also talked about new tools to unwind its accommodative monetary policy, including expansion of reverse repurchase agreements and a term deposit facility "that could convert a portion of depository institutions' holdings of reserve balances into deposits that are less liquid and could not be used to meet reserve requirements."

Fed Chairman Ben Bernanke said Thursday that while the U.S. economy appears to be recovering from its collapse during the 2008 financial crisis, it still has a long way to go, and that the recovery will move slowly through the coming months. (Market News Provided by RTTNews)