- Fed chairman tells Congress that unemployment expected to stay above 7% through 2014
- America must avoid chaotic incident like debt ceiling debate, he says
- Lower price of oil has brought inflation down, he says in semiannual report
Reduction in the unemployment rate is "likely to be frustratingly slow," Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee on Tuesday morning.
In his prepared testimony, Bernanke added that the Fed's overall forecast shows unemployment still stuck above 7% or higher at the end of 2014.
Bernanke -- on Capitol Hill for his semiannual monetary policy report to Congress -- noted that while employment conditions had been improving, the average increase in new jobs has been shrinking to about 75,000 per month since April.
And Bernanke tossed the ball in the direction of Congress, saying the most effective way lawmakers could help support the economy right now would be to address the nation's fiscal challenges in a way that won't harm the recovery but takes into account the "long-run sustainability" of the economy. Another episode like the chaotic debate over raising the debt ceiling was the sort of thing Americans needed to avoid this fall, he said.
But the Fed chairman had better news on inflation, saying that the lower price of oil has brought inflation down, and the Fed is now projecting a rate of 1.2% to 1.7% this year, and 2% or less in 2013 and 2014.
Bernanke noted concerns about U.S. economic growth, saying, "The U.S. economy has continued to recover, but economic activity appears to have slowed somewhat during the first half of this year."
Specifically, Bernanke noted that after a 2.5% gain in GDP for the second half of 2011, growth slowed to 2% for the first quarter of 2012, and he pointed to a "still smaller gain in the second quarter."
The Fed chairman also pointed to business spending, which has been trending down, and noted that other forward-looking indicators of investment demand suggest further weakness ahead.
Bernanke was mildly positive about the housing sector, saying that new and existing sales have been gradually trending upward since last summer. But he noted the large number of vacated homes keeping supply elevated and said that while lending standards are tight, at the same time households are concerned about their jobs and finances, along with a number of households that are "underwater": owing more on their mortgages than their houses are worth on the market.
Bernanke noted several significant risks to the U.S. economy, beginning with the crisis in Europe. He said that some of the slowing of the U.S. economy this year reflected problems in Europe. But he noted other headwinds for the U.S., including tight borrowing for businesses, and the restraining effects of fiscal policy and fiscal uncertainty.
Bernanke noted the problems in Europe as a major drag on current growth and creating worries about future growth in the U.S.; the other drag was fiscal uncertainty coming from Congress.