WASHINGTON — The economy’s continuing struggles aren’t just confounding ordinary Americans. They’ve also stumped the head of the Federal Reserve.
Fed Chairman Ben Bernanke told reporters Wednesday that the central bank had been caught off guard by recent signs of deterioration in the economy. And he said the troubles could continue into next year.
“We don’t have a precise read on why this slower pace of growth is persisting,” Bernanke said. He said the weak housing market and problems in the banking system might be “more persistent than we thought.”
It was the Fed chief’s most explicit warning yet that the economy will face serious challenges next year. For several months, he had said the factors working against economic growth appeared to be “transitory.”
The Fed cut its forecast for economic growth this year to a range of 2.7 percent to 2.9 percent from an April forecast of 3.1 percent to 3.3 percent. It also cut its forecast for next year to a range of 3.3 percent to 3.7 percent from an earlier 3.5 percent to 4.2 percent. The Fed also said unemployment would stay higher than it had expected earlier.
“Maybe some of the head winds that are concerning us, like weakness in the financial sector, problems in the housing sector . . . some of these head winds may be stronger and more persistent than we thought,” Bernanke said at the news conference, responding to a question about whether more permanent factors had led to the dimmer outlook.
In a policy statement issued at the end of a two-day meeting, the Fed blamed the worsening economic outlook in part on higher energy prices and the earthquake and tsunami in Japan, which slowed production of cars and other products.
But at the subsequent news conference, the second of what the Fed says will be regular question-and-answer sessions with reporters, Bernanke conceded the economy’s troubles are more puzzling and potentially more long- lasting than a pair of temporary shocks.
The Fed’s statement Wednesday stood in contrast to its more upbeat view when officials last met, eight weeks ago. At that time, the central bank said the job market was gradually improving. Since then, the economic news has been gloomy.
The Fed stuck to its plan to bring an end this month to a program to help the economy by buying $600 billion in government bonds. The Fed also intends to keep short-term interest rates near zero “for an extended period,” a phrase it has been using for the past two years. Though the central bank noted that inflation has risen, it expects that to be temporary as well.
