WASHINGTON — Against a backdrop of the nation’s looming debt-limit deadline, worsening financial troubles in Europe and a near-halt in job growth in the U.S., Federal Reserve Chairman Ben Bernanke sought Wednesday to reassure lawmakers and the nation that the central bank stood ready to spring into action if the economy stumbled further.
The remarks by the Fed chief, made during testimony to Congress, gave an immediate lift to anxious investors grappling with widespread uncertainty. But most of the gains dissipated by day’s end.
Analysts said that while Bernanke left the door open to further monetary stimulus, including another round of bond purchases, it would take a significant deterioration in the economy and the job market for the central bank to act. And Bernanke suggested he did not consider that a likely scenario.
In his semiannual report to Congress on the economy and monetary policy, Bernanke stuck to the view that temporary factors were behind the recent slowdown in the recovery and that the economy would pick up speed in the coming months. The economy in the first half of this year likely grew at an anemic rate of 2 percent or less after expanding by nearly 3 percent in the second half of last year.
“The apparent stabilization in the prices of oil and other commodities should ease the pressure on household budgets,” Bernanke said, adding that the economy also figures to get a boost this summer as car manufacturers step up production after cutting back because of disruptions from Japan’s earthquake and tsunami in March.
“The anticipated pickups in economic activity and job creation, together with the expected easing of price pressures, should bolster real household income, confidence and spending in the medium run,” he told the House Financial Services Committee.
Yet the Fed, as well as many private economists, has repeatedly overestimated future growth — and some think Bernanke did so again Wednesday.
“He’s betting that factors slowing the economy are transitory. That’s his hope,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. But Baumohl sees fuel and food prices remaining relatively high, reflecting long-term geopolitical instability in the Middle East and continued high demand from developing countries such as China.
“I believe there is a new normal,” Baumohl said.
The Fed chairman restated that Congress needs to raise the debt ceiling in time and develop a budget that would narrow the deficit over the long haul but not make drastic immediate cuts that could hurt the recovery.
Bernanke painted a grim picture should the nation fail to meet the deadline and be forced to hold back payments to Social Security beneficiaries, something that President Barack Obama said Tuesday was possible if the current impasse is not broken.
“The arithmetic is very simple,” he said. “The revenue that we get in from taxes is both irregular and much less than the current rate of spending” — on the order of about 40 percent.
