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Bernanke says recovery appears to have strengthened and defends Fed's bond-buying program

February 3, 2011 | 11:41 am

Bernanke Federal Reserve Chairman Ben S. Bernanke said Thursday that the economic recovery “appears to have strengthened in recent months” but that growth isn’t happening fast enough to bring down the high unemployment rate.

Consequently, Bernanke gave no indication the Fed would back off its controversial bond-buying program. In fact, he defended the effort in a speech and rare question-and-answer session with journalists at the National Press Club that ranged widely from monetary policy to the crisis in Egypt to his Super Bowl pick.

Although there is increasing evidence that  “a self-sustaining recovery in consumer and business spending may be taking hold,” Bernanke warned that the economy still was far from where it should be.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” he said.

And Bernanke warned of the consequences of the soaring federal budget deficit, saying Congress and the White House needed to make tough decisions to reduce the “sustained high rates of government borrowing.”

Our nation cannot reasonably expect to grow its way out of our fiscal imbalances, but a more productive economy will ease the trade-offs that we face,” he said.

Bernanke brushed off concerns about inflation and criticism of the Fed’s controversial move to further stimulate the economy by purchasing up to $600 billion in Treasury bonds. He said that, despite some “highly visible” price increases, such as for gasoline and other commodities, “overall inflation remains quite low.”

Asked if the Fed's policies had helped fuel the unrest in Egypt through higher fuel prices, Bernanke defended the program. He said he did not have much insight into what had caused the violent protests, but went on to guess that "issues about democracy and representation" had something to do with it.

But he was clear that he did not believe the Fed's bond-buying program, announced in August, was the cause.

The program has come under sharp fire from some foreign governments, including China, Germany and Brazil, who worried that the plan would drive down the value of the dollar and give U.S. exporters an economic advantage. There have also been concerns that it would add to inflation, raising commodity and food prices.

"I think its entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy," Bernanke said. He noted countries can adjust their own policies, including adjusting exchange rates, "which in some cases they have been reluctant to do" -- a clear reference to China.

As for Egypt, Bernanke said, "If the dollar is weaker, the Egyptian pound is stronger. Clearly what is happening is not a dollar effect."

The session was not exactly a news conference. As is its policy, the National Press Club asked for questions in writing from the audience. The host, club President Mark Hamrick, then sifted through the questions and asked certain ones to Bernanke.

The Fed has a committee reviewing whether its chairman should hold regular news conferences as a way of demystifying the central bank's work. But Bernanke said it's a difficult decision.

"On the one hand, real-time transparency is very important and valuable," Bernanke said. "On the other hand, we don't want to create unnecessary uncertainty, unnecessary volatility in financial markets by saying things that may be misinterpreted if they're too ad hoc."

As for the Super Bowl this Sunday between the Green Bay Packers and Pittsburgh Steelers, Bernanke, an avowed baseball fan, said he watches the NFL when the boys of summer are not at play. With the hometown Washington Redskins not involved, Bernanke said he would be "studiously objective" -- although he noted that he has the same first name as Steelers quarterback Ben Roethlisberger.

He did, however, offer one economic prediction: "GDP will drop to nothing during that three-hour span."

-- Jim Puzzanghera


Text of Bernanke's speech at the Press Club

Photo: Federal Reserve Chairman Ben S. Bernanke at the National Press Club. Credit: AFP / Getty Images