NEW YORK – Revised government economic data show the recession was deeper than thought and the recovery has been weaker than estimated, Federal Reserve Board Chairman Ben S. Bernanke told the Joint Economic Committee Tuesday.
Despite gains in manufacturing production and exports, “the recovery from the crisis has been much less robust than we had hoped,” Bernanke told Congress. “Recent revisions of government economic data show the recession as having been even deeper, and the recovery weaker, than previously estimated; indeed, by the second quarter of this year--the latest quarter for which official estimates are available--aggregate output in the United States still had not returned to the level that it had attained before the crisis.”
Real gross domestic product rose at an average annual rate of less than 1%, he said, attributing part of the weakness to temporary factors. “However, the incoming data suggest that other, more persistent factors also continue to restrain the pace of recovery. Consequently, the Federal Open Market Committee (FOMC) now expects a somewhat slower pace of economic growth over coming quarters than it did at the time of the June meeting, when Committee participants most recently submitted economic forecasts.”
“Very cautious” spending patterns by consumers, weak employment patterns by state and local government, weakness in the housing sector, and tight credit all contributed to the slow recovery.
Credit is tight, in part, as a result of “weaker balance sheets and income prospects have increased the perceived credit risk of many potential borrowers. We have also recently seen bouts of elevated volatility and risk aversion in financial markets, partly in reaction to fiscal concerns both here and abroad.” Yet inflation remains subdued.
Four “key objectives” Bernanke believes policymakers should consider in setting taxation and spending levels include: work toward long-run fiscal sustainability; avoid actions that could hinder recovery; promote long-term growth and economic opportunity; and ‘improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy.”
“Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy,” bernanke told Congress. “Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies--pertaining to labor markets, housing, trade, taxation, and regulation, for example--also have important roles to play. For our part, we at the Federal Reserve will continue to work to help create an environment that provides the greatest possible economic opportunity for all Americans.”
