Bernanke: Economy growing much too slowly to put people back to work

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In spite of recent data auguring another recession, Federal Reserve Chairman Ben Bernanke told a luncheon crowd in Indianapolis on Monday that he expects the economy to keep growing, but he's worried that it is growing so slowly that it risks creating a "permanent group" of underemployed Americans.

Bernanke, speaking to about 2,000 people in the Sagamore Ballroom at the Indiana Convention Center, also indicated the Fed plans to maintain stimulative policies even after the economy strengthens. His speech was presented by the Economic Club of Indiana. (See below for video highlights.)

“The longer we go with millions of people out of work—more than 40 percent of those unemployed have been unemployed for at least six months—the more people we’re going to have whose skills are going to atrophy, whose ability to find work is going to decline, and we’ll be creating a permanent group of people who will not be fulfilling their full potential in the labor force,” Bernanke said during a question-and-answer session after his prepared remarks. “And that, I think, is very, very costly. So that is one of the reasons, perhaps the key reason, why the Fed has taken action to support the recovery.”

The rest of Bernanke’s speech was a classroom-lecture like defense of the “less-traditional” tools the Fed has used the past four years in an attempt to spur economic growth, which have included holding the short-term federal funds rate near zero since late 2008, and spending trillions of dollars to buy U.S. Treasury securities and mortgage-backed securities in an effort to lower long-term borrowing costs.

Last month, Bernanke launched a third round of what the Fed calls “quantitative easing,” committing to purchase an additional $40 billion in mortgage-backed securities every month. Also, the Fed promised to hold interest rates low through mid-2015 assuming inflation remains stable.

On Monday, Bernanke clarified that second commitment, by saying that the Fed would maintain those policies even after the U.S. economy has shown signs of a strong rebound.

“That doesn't mean that we expect the economy to be weak through 2015. Rather, our message was that, so long as price stability is preserved, we will take care not to raise rates prematurely,” Bernanke said. “Specifically, we expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens.”

Bernanke hopes that by clearly signaling the Fed’s intention to keep borrowing costs at unprecedented low levels for nearly three more years, consumers and businesses will have confidence to spend and expand.

So far, national unemployment has been stuck at 8.1 percent or higher for most of this year. Roughly 23 million Americans remain out of work even though the recession that began in December 2007 officially ended in the middle of 2009.

Gross domestic product grew just 1.3 percent in the second quarter. And, last week , when it was announced that durable goods orders fell by 13 percent in August, some economists predicted another recession in early 2013.

“Hiring and investment are suffering greatly from paralyzing uncertainty, as voters face a choice between two drastically different visions for economic policy in less than six weeks, and businesses are willing to wait for the outcome before settling on and executing plans for the future,” Stephen Stanley, chief economist of Pierpont Securities, told MarketWatch last week.

Bernanke also acknowledged that uncertainty in Europe and the so-called “fiscal cliff” that the United States faces when several tax cuts expire at the end of this year are threats to the economy. But he reiterated that his fear is not negative growth in the economy, but simply growth that is only barely creating enough new jobs to absorb new workers entering the work force—not to put unemployed workers back to work.

“With an economy which is growing only 1.5 [percent] or 2 percent, that is not fast enough to lower the unemployment rate. That is my concern,” Bernanke said, adding, “Our concern is that growth will continue, but at a pace that is insufficient to put people back to work.”


  • @Idyllic Indy
    Bloomberg - "Bernanke has come under attack from Republican presidential candidate Mitt Romney, who said he won’t reappoint the Fed chairman and criticized his policies as ineffective and a threat to price stability" Romney has continually made statements that trash Bernarke and the debt that he is creating. Bernarke's only response to a weak economy is to print more money, and if that does not work, then they'll keep printing until it does.
  • Open your eyes
    Idyllic Indy, news flash: borrowing rates are also low, which means banks make less on loans. I'm tired of everyone complaining of low deposit rates. Banks are not non-profit organizations despite what kind of deposit rates you believe you are entitled to for "putting your money" in the bank. How do you expect banks to pay a higher rate on savings and CD's while still offering record low rates on home loans, consumer loans and loans to businesses in an effort to stimulate the economy? It's called an interest rate margin and it's squeezing bank profits (yes many banks are making money but they're also doing it by looking to other strategies because the traditional net interest margins are not there). Oh, BTW your money is FDIC insured, which banks also pay premiums for much like any other form of insurance. So before you complain about your "CD rates" look at both sides of the spectrum, go out and get yourself a low interest rate home loan. I suppose you'll want a lower rate on that too!!
  • Why would Romney be any different?
    Has Romney indicated that he'll go another direction with the Fed, if elected? Is this just wishful thinking?
  • Congrats
    Congratulations Ben Bernanke, you’ve managed to screw up the capital markets so badly that the US is on the verge of its own European-style debt crisis… despite you taking over the entire interbank money-market and nearly all US Treasury issuance. The US Federal Reserve bought roughly three quarters of all Treasury issuance last year. Let that sink in for a moment. Roughly $0.74 out of every $1 in debt created by the US in 2011 was bought by the US Fed… not by the bond market, not by foreign countries, but by our own Central Bank. Despite this massive intervention, the US economy (according to the ECRI) has officially re-entered a recession. Bernanke is growing truly desperate, both in terms of losing control of the markets and the potential of losing his job if Mitt Romney is elected President.
  • Bernarke has to go!
    Bernarke is saying whatever he can to give people hope and make people think he's has a clue how to get the economy moving. The truth will come out after the election of just how bad of a situation the Fed has created...and yes the Fed Reserve is where we should be placing a whole lot more blame. The constant printing of money has decreased the value of the dollar by near 30% and artificially inflated the stock market. Get ready for the real economic crash if Obama and bernarke stay in control. How long are Americans going to allow Bernarke to keep printing money and decreasing the wealth of average person until we say enough. If Obama is elected and Bernarke stays in control it will create an America that is broke and mediocre. Maybe everyone thinks that everyone should be equal. Romney believes that equal opportunity opportunity is better.
  • No way DMC
    No free money for the people. Just free money for the banks. But you can put your money in the bank and get paid about .1% interest. Too bad inflation hovers around 3%, 6%, or 10% depending on whether you believe the government's current CPI, or the ones they used back in 1990 or 1980. These policies would suggest that either Bernanke is stupid, or his supposed attempt to lower the unemployment rate is more about soothing the masses to prevent a revolution more than it is based on concern about the long-term welfare of the majority of Americans.
    • Impressive
      I was very impressed with Chairman Bernanke. He responded to the accusations of his critics with intelligent justifications for the FED's position and actions. There is no question, he is the right person to lead the monetary policy of the US. He said that FED will do everything within its power to improve the recovery - now others need to do the same - congress and businesses.
    • Ugh
      This would be the same Ben Bernanke who was so paralyzed by his fear of nonexistent inflation that his Fed did far too little to stimulate the economy. How about free money for the people?

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