Bernanke sees U.S. poised for growth in 2014
Philadelphia - Ben Bernanke said the headwinds that have held back the U.S. economy may be abating, leaving the country poised for faster growth as his tenure as Federal Reserve chairman comes to an end.
"The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters," Bernanke said Friday in remarks prepared for a speech in Philadelphia. "Of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts."
Bernanke used his remarks to reflect on his eight years as leader of the U.S. central bank, steering the economy through the most severe economic and financial crisis since the 1930s. Policy makers last month trimmed the Fed's monthly bond buying to $75 billion from $85 billion, taking a first step toward unwinding unprecedented stimulus engineered by Bernanke to put millions of unemployed Americans back to work.
He said the decision to taper bond purchases "did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed."
Bernanke cited payroll employment rising by 7.5 million since 2010 and the economy growing in 16 of the 17 quarters after the recession ended as evidence the Fed's policies, which also included providing more information on the likely future path of interest rates, have succeeded.
"The economy has made considerable progress since the recovery officially began some four and a half years ago," the 60-year-old former Princeton University professor said to the annual meeting of the American Economic Association. His tenure ends Jan. 31.
"When the economy was in free fall in late 2008 and early 2009, such improvement was far from certain, as indicated at the time by stock prices that were nearly 60 percent below current levels and very wide credit spreads," Bernanke said.
The Standard & Poor's 500 Index, which hit a record last month and rose 30 percent last year, was up 0.2 percent to 1,834.69 at 3:02 p.m. in New York. The yield on the benchmark 10-year Treasury note rose 0.01 percentage point to 3 percent.
The Fed's bond buying helped reduce unemployment to a five- year low of 7 percent in November while swelling the Fed's balance sheet to $4.02 trillion. Policy makers, including Philadelphia Fed President Charles Plosser, have said the purchases raise the long-term risk of inflation and may create financial market distortions such as asset-price bubbles.
Bernanke defended the programs in his remarks Friday, saying that "for the most part" academic research supports the conclusion that bond purchases and clearer communication from the Fed have "helped promote the recovery."
Under Bernanke, the Fed began publishing its economic forecasts more frequently, established explicit goals for inflation and unemployment, released projections of future interest rates and began holding quarterly press conferences. Bernanke said the steps have made Fed policy effective and are important for "supporting the institution's democratic legitimacy."
At the same time, Bernanke sought to prevent Congress from allowing audits of the central bank's monetary-policy decision making, saying that such audits could infringe the Fed's independence. The Fed's financial books are audited.
The Federal Open Market Committee, scheduled to meet Jan. 28-29, will probably reduce its purchases in $10 billion increments over the next seven meetings before ending them in December, according to a Bloomberg News survey of economists after the FOMC announced its tapering on Dec. 18.
Recent economic reports have affirmed Bernanke's comment at a Dec. 18 news conference that "the economy is continuing to make progress."
Manufacturing grew last month at the second-fastest pace in more than two years, fueled by a gain in orders that will help propel the expansion, according to a report Thursday from the Institute for Supply Management.
Outlays for construction projects climbed in November to the highest level since March 2009 as homebuilding and non- residential spending made up for government cutbacks, according to data from the Commerce Department.
U.S. house prices rose in October from a year ago by the most in more than seven years, according to the S&P/Case-Shiller index of property prices in 20 cities. All 20 cities in the index showed a year-over-year gain, led by a 27.1 percent advance in Las Vegas.
The Fed has said it will buy bonds until the outlook for the labor market has "improved substantially." Bernanke told reporters on Dec. 18 the program was on its way to meeting that test, noting "meaningful cumulative progress" since the start of a third round of asset purchases in Sept. 2012.
The central bank coupled its decision to taper with a stronger commitment to maintaining an accommodative policy. The benchmark interest rate will probably remain low "well past the time that the unemployment rate declines below 6.5 percent," especially if projected inflation continues to run below the Fed's 2 percent goal, the FOMC said.
Bernanke, a Great Depression scholar, served on President George W. Bush's Council of Economic Advisers. He didn't elaborate on Dec. 18 when asked about his plans after leaving the Fed, other than to say that he and his wife "will stay in Washington for a bit of time."
Fed Vice Chairman Janet Yellen has been nominated to succeed Bernanke. The Senate vote on her nomination is scheduled for Jan. 6.
Yellen, an architect of the Fed stimulus programs, said in her Nov. 14 confirmation hearing that she'll maintain current policies until a "strong recovery" permits the bank to scale back monetary accommodation.
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