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Bernanke grows more confident in US recovery

(Agencies)
Updated: 2011-01-08 11:17

US Federal Reserve Board Chairman Ben Bernanke testifies in front of the US Senate Budget Committee on "The US Economic Outlook: Challenges for Monetary and Fiscal Policy" on Capitol Hill in Washington, Jan 7, 2011. [Photo/Agencies]

WASHINGTON - The US economy may finally be hitting its stride even if growth remains too weak to put a real dent in the nation's jobless rate, Federal Reserve Chairman Ben Bernanke said on Friday.

Offering no real clues on the future direction of monetary policy, Bernanke sounded cautiously more upbeat than he had in his most recent public remarks. He cited improvements in consumer spending and a drop in jobless benefit claims as hopeful signs a languid recovery was perking up.

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"We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold," the central bank chief said in his first testimony to Congress since the Fed launched a controversial plan to buy an extra $600 billion in government bonds.

Just a month ago, in an interview on the CBS program "60 Minutes," Bernanke voiced a degree of trepidation about the economy's rebound.

His remarks on Friday were made public just an hour after the government reported the economy generated a disappointing 103,000 jobs in December.

Bernanke, who said it would take four to five years for the labor market to get back to normal, showed no inclination toward cutting short the Fed's bond purchase program, designed to stimulate the economy. But he?also offered no hints of further buying beyond the program's June deadline.

"The Fed will not rush for the exit," said Lena Komileva, economist at Tullett Prebon. "The potential for further (easing) remains if weak labor and housing activity continue to depress inflation trends."

Financial markets, which focused on the new jobs data, showed little reaction to Bernanke's remarks.

The US jobless rate dropped to 9.4 percent in December, the lowest rate since May 2009 and down from 9.8 percent a month earlier, but the decline was partly due to a troubling rise in the number of people exiting the workforce.

Echoing Bernanke, Fed Board Governor Elizabeth Duke said in a separate speech that the recovery appeared to be gathering steam, but both hiring and inflation would likely remain subdued.

"I am encouraged by signs that the recovery may have gained traction recently," Duke said.

The improvement in the economic backdrop has prompted Wall Street investors to begin pondering a possible reversal in Fed policy as early as the end of this year. In the summer, few expected anything in the way of monetary tightening until at least 2012.

Highlighting lingering concern at the Fed about how deep a hole the economy must climb out of, another official emphasized that the bond-buying program had been necessary to lift a recovery that was too weak to dent high unemployment.

"More recent data have been coming in somewhat stronger," Chicago Fed President Charles Evans said in a speech. "But they do not yet point to the kind of robust, self-perpetuating recovery that we need in order to close today's large resource gaps within a reasonable amount of time."

Evans is one of the most outspoken backers of aggressive Fed actions to spur growth, and is a voter on the central bank's policy-setting panel in 2011.