WASHINGTON - There is a "reasonable chance" that the United States in the long-term will return to a growth rate somewhere around 3%, Federal Reserve Chairman Ben Bernanke said Thursday
In remarks during his fourth and final lecture to students at George Washington University, Bernanke showed a chart depicting the economy growing by a constant rate of a little over 3% in real terms over the long-term.
He said the U.S. -- dating back to the 1900s -- has grown "pretty consistently" around the above rate for more than a century.
And despite the Great Depression, when growth dipped below the trend, and World War II -- when it rose above -- the pace of economic activity returned to the trend line afterwards, Bernanke said.
Today, the U.S. growth rate is below the trend line, "but I think there is a reasonable chance, looking at the long run of history, that the U.S. economy will return to healthy growth somewhere in the 3% range," he said.
There are factors to take into account, Bernanke cautioned, such as changes in population growth and ageing. "But broadly speaking what this picture shows is that over long periods of time our economy has been successful in maintaining long-term economic growth," he said.
U.S. real GDP increased at an annual rate of 3.0% in the fourth quarter of 2011 according to the "third" estimate released by the Bureau of Economic Analysis Thursday. The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in personal consumption expenditures and in residential fixed investment.
Right now, "We are still some distance from being back to normal," Bernanke said.
Why has the recovery been more sluggish than normal?
"One reason is the housing market," Bernanke said, with a lot of structural factors still preventing a robust recovery.
He noted the supply glut due to foreclosed homes, and sellers unable to find buyers. On demand side, he cited very tight lending standards blunting appetite for loans, and buyers afraid to get back into housing.
The result is a decline in house prices, which reduces the incentive to build more homes. The drop in housing prices is one of the reasons that consumers are reluctant to spend, Bernanke said.
He added that although U.S. banks are stronger compared to three years ago, and "some improvement in banking and credit," there are some areas where credit remains tight, such as for small businesses.
With regard to Europe, Bernanke said solvency issues have led to some "stressed financial conditions" in Europe, which has caused risk aversion and volatility in the financial markets.
"Clearly there are some real headwinds for our economy," Bernanke said.
And while monetary policy is a powerful tool, it cannot solve all problems, he said.
"Monetary policy by itself can't solve important structural and fiscal problems" impacting the economy, Bernanke said.
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