Bernanke sees recovery strengthening, but challeng

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Bernanke sees recovery strengthening, but challenges remain tough
U.S. Federal Reserve Chairman Ben Bernanke Thursday said that the economic recovery is taking on an improved picture, however, the challenges, including to create jobs and restore fiscal sustainability, remain tough.
ECONOMIC RECOVERY STRENGTHENING
"The economic recovery that began in the middle of 2009 appears to have strengthened in recent months," Bernanke told reporters at the National Press Club in Washington. "More recently, we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. Notably, we learned last week that households increased their spending in the fourth quarter,[link widoczny dla zalogowanych], in real terms, at an annual rate of more than 4 percent."
The central bank chief said that businesses' investments in new equipment and software grew robustly over most of last year,[link widoczny dla zalogowanych], as firms replaced aging equipment and as the demand for their products and services expanded.
He said that improving household and business confidence,[link widoczny dla zalogowanych], accommodative monetary policy, and more-supportive financial conditions, including an apparent increase in the willingness of banks to make loans, seems likely to lead to a more rapid pace of economic recovery in 2011 than the Fed's expectation last year.
On the inflation front, "we have recently seen significant increases in some highly visible prices, notably for gasoline." Nevertheless, overall inflation remains quite low, which provides evidence for the Fed to keep its loose monetary policy."Over the 12 months ending in December,[link widoczny dla zalogowanych], prices for all the goods and services purchased by households increased by only 1.2 percent, down from 2.4 percent over the prior 12 months,[link widoczny dla zalogowanych]," he said.
According to the latest government data,[link widoczny dla zalogowanych], the U.S. economy grew at 3.2 percent in the forth quarter in 2010, quicker than the 2.6 percent pace in the third quarter of 2010. It was the best quarterly showing since the start of last year.For all of 2010, the economy grew 2.9 percent, the most since 2005. It was an improvement from 2009 when the economy suffered its worst decline in more than 60 years.
MAJOR CHALLENGES
The Fed chief said that although the economic recovery is strengthening, to date, "growth has not been fast enough to bring about a significant improvement in the job market."While indicators of spending and production have, on balance, been encouraging, the job market has improved only slowly. Following the loss of about 8.5 million jobs in 2008 and 2009, private-sector employment showed gains in 2010.
However, these gains were barely sufficient to accommodate the inflow of recent graduates and other new entrants to the labor force and, therefore, not enough to significantly reduce the overall unemployment rate, which is currently at 9.4 percent."Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,[link widoczny dla zalogowanych]," Bernanke said.
The housing sector,[link widoczny dla zalogowanych], which had triggered this round of financial crisis and recession, remains in tough situation."The overhang of vacant and foreclosed homes continues to weigh heavily on both home prices and residential construction," Bernanke said.
Besides, the country's is facing lingering fiscal problems."The long-term fiscal challenges confronting the nation are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors," Bernanke said.
Bernanke said that the U.S. federal budget deficit has expanded to an average of more than 9 percent of gross domestic product ( GDP) over the past two years,[link widoczny dla zalogowanych], up from an average of about 2 percent of GDP during the three years prior to the recession.He noted that the extraordinarily wide deficit largely reflects the weakness of the economy along with the actions that the Administration and the Congress took to ease the recession and steady financial markets.
"However, even after economic and financial conditions have returned to normal, the federal budget will remain on an unsustainable path, with the budget gap becoming increasingly large over time," he said.Bernanke said that there are the two major driving forces behind the soaring federal budget,[link widoczny dla zalogowanych], including the aging of the U.S. population and rapidly rising health-care costs.
The Congress Budget Office projected that U.S. federal spending for health-care programs -- which includes Medicare, Medicaid, and subsidies to purchase health insurance through new insurance exchanges -- will roughly double as a percentage of GDP over the next 25 years.The projected fiscal pressures associated with Social Security are also notable.
Bernanke warned that sustained high rates of government borrowing would both drain funds away from private investment and increase the country's debt to foreigners. Moreover,[link widoczny dla zalogowanych], diminishing investor confidence that deficits will be brought under control would ultimately lead to sharply rising interest rates on government debt and,[link widoczny dla zalogowanych], potentially, to broader financial turmoil.
In order to restore fiscal sustainability in the United States, he urged the Congress and the Administration to seek reforms to the government's tax policies and spending priorities that serve not only to reduce the deficit, but also to enhance the long-term growth potential of the economy."Our nation cannot reasonably expect to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face." Bernanke concluded.
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