Federal Reserve Board chairman Ben Bernanke said Friday that the economic recovery should be a little stronger this year than in 2010 and “a self-sustaining recovery” in consumer and business spending may be taking hold even as federal deficits threaten the economy.
“It is widely understood that the federal government is on an unsustainable fiscal path,” Bernanke told the Senate Committee on the Budget, according to prepared text of his remarks. “We have done little to address this critical threat to our economy. Doing nothing will not be an option indefinitely.”
The longer officials wait, the greater the risks and more wrenching the inevitable changes to the budget, he said.
The Fed chief indicated the pace of the recovery has not been strong enough to significantly reduce the rate of unemployment. Labor woes continue, and although job openings and hiring plans appear stronger going forward, it should be a “considerable time” before unemployment drops to a “more normal level.”
“Unemployment is too high for the Fed not to ease further,” Diane Swonk, chief economist at Mesirow Financial, said in a research note. “With the fed funds rate effectively zero, [Bernanke indicated] that the only way to attain that objective is to buy Treasury bonds.”