WASHINGTON — On the heels of new government data showing the biggest drop in bank lending in the postwar era, Federal Reserve Chairman Ben Bernanke offered a sober outlook Wednesday for the U.S. economy, anticipating high unemployment for years to come.
Deterioration in the job market is abating, Bernanke told the House Financial Services Committee, and there are other positive signs.
These include fewer Americans filing first-time claims for unemployment benefits and an uptick in manufacturing hiring, which points to increasing consumer and business demand for products.
“Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” the Fed chief said in his semiannual policy address.
On other topics, Bernanke expects lending rates to remain low for the foreseeable future. Congress, he said, should move to address the mounting federal budget deficits, or it will face much higher costs for fixing the problem later.
As Congress wrestles to revamp financial regulation, Bernanke frowned on an Obama administration proposal pushed by former Fed Chairman Paul Volcker to restrict the investment activities of commercial banks. Bernanke favored an approach already passed by the House of Representatives that would give bank supervisors discretion to restrict risky investments but wouldn’t explicitly direct them to do so.
In his opening statement, Bernanke said he and the interest- rate-setting Federal Open Market Committee anticipate a U.S. growth rate this year of 3 percent to 3.5 percent, and next year between 3.5 percent and 4.5 percent. That’s a bit higher than mainstream private forecasts, but the nation’s central bank chief wasn’t as optimistic on the jobs outlook.
“Consistent with moderate economic growth, participants expect the unemployment rate to decline only slowly, to a range of roughly 6.5 percent to 7.5 percent by the end of 2012, still well above their estimate of the long-run sustainable rate of about 5 percent,” Bernanke said.
A recent White House economic report suggested the nation might not return to full employment until 2018.
