Bernanke Warns of "Formidable Headwinds"

(AP)  Federal Reserve Chairman Ben Bernanke warned Monday that it's too soon to know whether the economic recovery will last and again pledged to hold rates at record-low levels for an "extended period."

The Fed chief's speech to the Economic Club of Washington made clear he thinks the economy will struggle even as it recovers from the recession. He said the economy confronts "formidable headwinds" - including a weak job market, cautious consumers and tight credit.

Those forces "seem likely to keep the pace of expansion moderate," he said.

The central bank has leeway to keep rates low because inflation is under control and is expected to stay tame because of the economy's weakness. Some private forecasters even fear that the recovery could fizzle late next year as government stimulus fades.

Asked about prospects for such a "double dip" recession, Bernanke said he could not guarantee it won't happen. He stuck with his forecast for a moderate recovery but said a "vigorous snapback" is less likely.

Bernanke said he expects "modest" economic growth next year. That should help push down the nation's unemployment rate - now at 10 percent - "but at a pace slower than we would like," he acknowledged.

Under one Fed forecast released last month, the jobless rate would remain high next year - ranging from 9.3 to 9.7 percent. The Fed has warned that it could take five or six years for the job market to return to normal.

To nurture the recovery, the Fed has kept rates at record low near zero for a year. The central bank is expected to leave rates at those levels at its meeting Dec. 15-16. By doing so, the Fed hopes to entice people and businesses to boost spending, which would aid the recovery.

When asked about rates, Bernanke joked, "Well, they can't go much further down."

He went on to repeat the Fed's pledge to keep rates at record lows for an extended period.

"That remains where we are, but we're going to have to continue to look at the economy," Bernanke said.

Despite all the negative forces, consumers recently have shown their resilience and kept spending. Home sales have firmed helped by the government's tax buyer credit. Car sales were aided by the government's now-defunct Cash for Clunkers rebates.

Business spending on new equipment and software also showed signs of stabilizing, and better economic conditions abroad have boosted U.S. exports.

And the heavy pace of layoffs is slowing. Employer shed just 11,000 jobs last month, the fewest since the recession began two years ago. That helped push down the unemployment rate to 10 percent, from a 26-year high of 10.2 percent in October.

Still, economists took Bernanke's remarks as indicating that he isn't in a rush to raise rates.

"Bernanke's main message is that the Fed still remains very committed to policies that will provide further support for a stronger recovery," said Brian Bethune, economist at IHS Global Insight. "There hasn't been dramatic enough improvements in the economy to make any major changes."

Mike Feroli, economist at JPMorgan Chase, agreed, saying "Bernanke stays glum on the economy."

The speech, which outlined the most frequently asked questions put to the central bank, comes as Bernanke seeks another four-year term. Some lawmakers skewered Bernanke at his Senate confirmation hearing last week about high unemployment, regulatory lapses that contributed to the financial crisis and the Wall Street bailouts that followed.

Even as some senators vowed to block his confirmation, it appears Bernanke will be able to secure the votes necessary to be approved to another term.

As he did last week, Bernanke said he would reverse course and start boosting interest rates and tightening monetary policy when the time is right. He didn't say when that would be, though many economists think it will be next year.

On other matters, Bernanke predicted taxpayers will get all their money back from the financial bailouts as well as some "fairly significant extra income" from the investments. "I think we're in very good shape," he said.

He also voiced his opposition again to congressional efforts to audit the Fed. He argues that the legislation would affect the Fed's setting of interest rates.

"Reducing the independence of the Fed ... would be bad for markets, bad for the Fed's credibility, bad for inflation expectations and bad for the dollar," he said.

Asked what he likes best about being Fed chief, Bernanke struck a lighthearted tone.

"I get to go through the security lines at the airport much more quickly, and I can take along even three ounces of fluid if I want to," Bernanke said, causing the audience to erupt in laughter.

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[John_Merritt]

Yes there are formidable headwinds, we all know that. But we have to start moving this moving from the banks and get it into commerce to get job creation, get people off the dole and start exchanging goods and dollars again. Without the consumer (70% of our GDP) we are going to be running in place. We need to move forward. We need to get people spending, instead of hiding for fear of the economic, political and military doom which has been referred to as the 'perfect storm'.

We know what has to be done. We need to gain control of our government spending, it is out of control. We need to get lean and mean. We have such a bloated system that it is entirely dysfunctional. We need to partner with our allies across with the world. We don't need protectionism, we need cooperation. If someone does not want to partner, we will find someone else that will. We need NAFTA, CAFTA and SHAFTA like a hole in the log. We need to look at all of our alliances, spend what we can, save what we can, and invest what we can.

If we do not look at what we are now, what we want to be, and where we want to be 3-5-7-10 years down the road; we will continue to flounder. Strap up your boots, get the creative juices flowing and take some risks. But use your heads because no one is looking out for us, except ourselves. What are we made of, we know the answer to that but Congess has lost faith in the America people. We never lost faith in ourselves.

[inketolstoy]

I hope you are right.

[reveal4]

Bernanke predicted taxpayers will get their money back from the economic bailouts, with interest. The "Tea Parety" crowd on the blog will sure be upset. Good news is bad news to the "Tea Party" crowd. If the current administration gets any credit, the fringe will not like it. If the bailouts produce dividends, the "exactly backwords" crowd will be unhappy. Thank goodness the exactly backword contrarians amount to only 10% to 15% of the population.

[bubbadubba]

Bernanke announced the Fed will make a profit on the bailouts.
What Bernanke DID NOT say is that the FED is a private organization owned by a few wealthy groups and they will get profits while the US taxpayer will not on Government bailouts.
Out with Bernanke who caused this mess, let's get somebody else as our economic king and master.

[rightbehind]

Gee, Houses are now affordable and are holding their value. Interest rates are the lowest they've been in years. Every business I check says things are holding or improving. The only thing I see wrong is they haven't dragged the speculators who drove gas to 4 dollars a gallon out in leg irons. I would say Bernanke is the right man for the job. Of every FED chairman I've seen he is the most credible.

[stn_sage]

In my opinion, Bernanke is incompetent! And, his re-appointment demonstrates the lack of seriousness on Obama's part to repair the economy! Both these men take their orders from the global elite...in my opinion!

[rightbehind]

This Captain knows the waters he travels. He is correct. I would like to see him do something about companies paying their employees with these corporate debit cards. I think it taints our monetary system.

[denvermorgan3000]

I have been watching america sink for the past 20 years
the politicians in america are so stupid they dont take care
of us they only take care of themselves and foreiners

[rightbehind]

It's republican ideology that has done this. Your time estimates are correct. It started with Reagan

[Xamkr]

There is no recovery. All they did was ship a truckload of money to some big, incompetent corporations. There is no reason to see a decline in the unemployment rate in the foreseeable future, and when the rate starts to recover, the wages will be significantly lower for the new employees.

[rightbehind]

Cause and effect. The nation is suffering from republican free market ideology. They believe the people of the US should be more competitive with third world countries. We need to throw more republicans out of office coming the 2010 elections. They have 18 of the 40 senate seats they have left back on the ballot in 2010. The recovery will come much sooner and we can get back to setting world standards.

[stn_sage]

That's the dirty little secret, Xamkr!
The politicians are helping the globalists finish off our economy, the only problem is a lot of the public are waking up to the fact, and it makes it tougher for incumbent politicians to get reelected...so, they have to 'slow down' the sacking a bit, to get reelected in 2010, THEN they'll tank the economy and finish the looting!

[patocc123]

We've been slowly moving from a manufacturing country to a service country. When our laws are not favorable for companies to open manufacturing plants in the US but instead are willing to pay for shipping costs then that is money we lose out of in Revenue via Corporate tax and payroll tax.

Over the past generation we've seem to demonize corporations and instead of placing rules and regulation in place to control them we tax them to the point of cheap labor elswhere is too profitable.

I do not think we will ever see another technology boom like the IT boom of the early 90's to mask the direction this country is going in. Regardless of this latest recession . . We as a country will not be the same economic power we used to be.