Bernanke: 'sufficient' demand to promote US recovery
FEDERAL Reserve chairman Ben Bernanke said US 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," the Fed chairman said in prepared testimony to the Joint Economic Committee of Congress.
"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 said the Federal Open Market Committee has "stated clearly" its pledge to keep the main interest rate low for an "extended period" contingent on conditions including high unemployment and low inflation.
US central bankers are debating how and when to pull back on record monetary stimulus as the economy recovers from the worst slump since the Great Depression.
The 56-year-old former Princeton University economist 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," he told the Joint Economic Committee of Congress.
"A significant amount of time will be required to restore the 8.5 million jobs lost during the past two years".
Stocks rose on the retail sales figures and better-than-forecast corporate earnings. The Standard & Poor's 500 Index climbed 0.5pc to 1,203.
Manufacturing grew at the fastest pace in more than five years in March, and service industries expanded at the fastest pace since May 2006, according to indexes tracked by the Institute of Supply Management.
The Fed chairman said 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," Mr Bernanke said.
The consumer price index slowed to a 1.1pc annual rate in March versus 1.3pc in February, Labor Department figures showed today.
The Fed chairman said the rate of increase in consumer prices was subdued and moderation in inflation has been broadly-based.
Mr Bernanke repeated 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." (Bloomberg)