U.S. unemployment remains too high despite increasing signs of economic strength, Federal Reserve Chairman Ben Bernanke told Congress on Wednesday, suggesting the central bank would push on with its $600 billion stimulus program.
In testimony to the U.S. House of Representatives’ Budget Committee that largely echoed a speech he delivered last week, Bernanke also warned about the dangers of unsustainable budget deficits.
He acknowledged fresh data showing a drop in the jobless rate to 9 percent in January from 9.8 percent in November, the biggest two-month drop since 1958, calling it “grounds for optimism.”
However, Bernanke reiterated concern about the anemic pace of hiring.
“The job market has improved only slowly,” he said, noting the economy had only made up just over 1 million of the more than 8 million jobs lost during the deepest recession in generations.
“This gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants into the labor force and, therefore, not enough to significantly erode the wide margin of slack that remains in our labor market.”
In November, the Fed launched a plan to buy $600 billion in government debt to keep a lid on long-term borrowing costs.
That program drew ire from many policy-makers in emerging markets, who accused the United States of unfairly driving down the value of the U.S. dollar to boost exports. At home, many Republican lawmakers in Congress attacked the program as potentially sowing the seeds of inflation.
Bernanke said inflation remains quite low in the United States, a tough message to deliver amid headlines of rising food and commodity costs across the globe.
He also said expectations of future inflation had remained “stable,” suggesting little worry an inflationary psychology was building despite rising gasoline costs.
“Inflation is expected to persist below the levels that Federal Reserve policymakers have judged to be consistent” with their mandate, Bernanke repeated.
The chairman of the committee, Republican Rep. Paul Ryan of Wisconsin, took issue with that view. In his opening comments, he criticized the Fed’s policies as providing the fuel for future bubbles and inflation, suggesting the Fed’s bond purchases were eroding the U.S. dollar’s value.
“There is nothing more insidious that a country can do to its citizens than debase its currency,” Ryan said.
Bernanke was sure to be peppered with questions on both Fed policy and the budget by a Republican-led Congress that has become increasingly impatient with the Fed.
Preemptively, the Fed chairman had much the same message that he has offered repeatedly: either legislators bring the budget under control or the markets will force them into it.
“Creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit,” he said. If unheeded, the adjustment could “come as a rapid and painful response to a looming or actual fiscal crisis.”
