Federal Reserve Chairman Ben S. Bernanke said the U.S. expansion will remain moderate as the economy contends with weak construction spending and high unemployment.
“On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,” Mr. Bernanke said in testimony to the Joint Economic Committee of Congress on Wednesday. “Significant restraints on the pace of the recovery remain, including weakness in both residential and non-residential construction and the poor fiscal condition of many state and local governments.”
Mr. Bernanke's remarks didn't include a discussion of the path of interest rates, and his outlook doesn't suggest Fed officials are ready to alter their guidance that rates will remain low “for an extended period,” a phrase repeated in their March statement.
Policymakers have held the main lending rate at zero to 0.25% since December 2008. Fed officials next meet April 27-28.
Mr. Bernanke said “further economic expansion will depend on continued growth in private final demand,” now that inventories are better aligned with sales and as fiscal stimulus is set to taper off.
“Consumer spending should be aided by a gradual pickup in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability,” Mr. Bernanke said. Even so, “a significant amount of time will be required to restore the 8.5 million jobs that were lost during the past two years.”
The Fed chairman noted that bank credit to households and businesses is still falling. “The decline in large part reflects sluggish loan demand and the fact that many potential borrowers no longer qualify for credit, both results of a weak economy,” he said.
Mr. Bernanke reiterated his call for lawmakers to set a path of reducing the record federal budget deficit. “A credible plan for fiscal sustainability could yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence,” he said. “Addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult.”