Signs point to a moderate recovery in the near future, Federal Reserve Board chairman Ben S. Bernanke told Congress yesterday, and while he made no mention of monetary policy, inflation was expected to be subdued and housing was still a concern.
“Supported by stimulative monetary and fiscal policies and the concerted efforts of policymakers to stabilize the financial system, a recovery in economic activity appears to have begun in the second half of last year,” Bernanke told a Congressional Joint Economic Committee, according to prepared text of his remarks released by the Fed.
After “working down” excess inventories, firms needed to expand production, he said.
“Indeed, the boost from the slower drawdown in inventories accounted for the majority of the sharp rise in real gross domestic product in the fourth quarter of last year, during which real GDP increased at an annual rate of 5.6%.”
But now further economic expansion will be determined by private sector demand, which he said “will be sufficient to promote a moderate economic recovery in coming quarters.”
A gradual pickup in employment, recovery in household wealth, and an increase in credit availability will spur consumer spending, which has grown slightly, he said.
“To be sure, significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments,” Bernanke noted.
The labor market appears to be improving, with layoffs slowing and new claims for unemployment insurance on a generally downward trend.
“On the inflation front, recent data continue to show a subdued rate of increase in consumer prices,” the Fed chief said. “The moderation in inflation has been broadly based, affecting most categories of goods and services with the principal exception of some globally traded commodities and materials, including crude oil. Long-run inflation expectations appear stable.”