Members of the US Senate banking committee and the financial markets were disappointed by Federal Reserve Chairman Ben Bernanke’s update on the US economy.
He offered few new clues on whether the US central bank was moving closer to a fresh round of monetary stimulus and just repeated the Fed’s pledge to act if needed.
He told lawmakers: “Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to the economic outlook, the committee made clear at its June meeting that it is prepared to take further action as appropriate to promote a stronger economic recovery.”
The financial markets had wanted broader clues on possible timing for additional government bond purchases – basically printing money to buy back bonds – thus injecting more cash into the economy to stimulate it.
Bernanke was speaking one day after the latest figures showed US retail sales fell in June for the third straight month, added to evidence the world’s largest economy is slowing.
The Fed’s experts also cut their growth forecasts. The best they hope for this year is GDP expanding by t2.4 percent, not enough to bring down unemployment below eight percent of the workforce.
The Fed chairman said the recent deterioration in the US labour market suggests the nation’s 8.2 percent jobless rate will come down all too gradually.
He admitted for the first time the softness could not be explained away by purely seasonal factors.
During the second quarter, job creation averaged 75,000 per month, down from an average of 226,000 in the first quarter.
Bernanke previously had said that unusually warm weather may have boosted hiring in the winter at spring’s expense, while the big drop in economic output in the winter of 2008-2009 may have thrown off the adjustments the government makes in the data for normal seasonal swings.
“Issues related to seasonal adjustment and the unusually warm weather this past winter can account for a part, but only a part, of this loss of momentum in job creation,” he said.
Bernanke said the Fed remains in close contact with European authorities, and is focused on making sure the US financial system remains resilient to financial shocks.
“Europe’s financial markets and economy remain under significant stress, with spillover effects on financial and economic conditions in the rest of the world, including the United States,” he said.