Bernanke signals no imminent steps to aid economy

Fed­eral Reserve Board Chair­man Ben Bernanke tes­ti­fies before the Joint Eco­nomic Com­mit­tee about the health of nation’s econ­omy, the slump­ing recov­ery and the Euro­pean debt cri­sis, Thurs­day on Capi­tol Hill in Wash­ing­ton. (Asso­ci­ated Press | J. Scott Applewhite)

MARTIN CRUTSINGER

AP Eco­nom­ics Writer

WASHINGTON — Slump­ing job growth has alarmed some econ­o­mists that the U.S. econ­omy is in trouble.

Ben Bernanke doesn’t appear to be one of them.

The Fed­eral Reserve chief sketched a hope­ful out­look in tes­ti­mony to a con­gres­sional panel Thurs­day and sent no sig­nals that the Fed will take fur­ther steps soon to aid the economy.

Bernanke acknowl­edged that Europe’s debt cri­sis poses risks to the U.S. finan­cial mar­kets. He also noted that U.S. unem­ploy­ment remains high at 8.2 per­cent. And he said the Fed is pre­pared to take steps to boost the U.S. econ­omy if it weakens.

But he said Fed offi­cials still need to study the most recent eco­nomic trends, includ­ing job growth. For now, Bernanke said he fore­sees mod­er­ate growth this year.

He said he’s mind­ful that all that could change, if Europe’s cri­sis quickly wors­ened or U.S. job growth stalled.

“As always, the Fed­eral Reserve remains pre­pared to take action as needed to pro­tect the U.S. finan­cial sys­tem and econ­omy in the event that finan­cial stresses esca­late,” he told the Joint Eco­nomic Committee.

The Fed could buy more bonds to try to fur­ther reduce long-term inter­est rates, which might encour­age more bor­row­ing and spend­ing. Or it could extend its plan to keep short-term rates near zero beyond late 2014 until an even later date.

But most econ­o­mists don’t expect a major announce­ment at the Fed’s next pol­icy meet­ing June 19–20, despite sig­nals this week from some other Fed mem­bers in favor of con­sid­er­ing fur­ther action.

For one thing, long-term U.S. inter­est rates have already touched record lows. Even if rates dropped fur­ther, ana­lysts say they might pro­vide lit­tle ben­e­fit for the econ­omy. They say it’s unlikely that many busi­nesses and con­sumers who aren’t bor­row­ing now at super-low rates would do so if rates declined a bit more.

And Bernanke could face pres­sure not to pur­sue fur­ther stim­u­lus before the Novem­ber elec­tion because such steps could be per­ceived as help­ing Pres­i­dent Barack Obama win re-election.

“The Fed stim­u­la­tive effects have really run their course,” Obama’s Repub­li­can oppo­nent, Mitt Rom­ney, argued in a tele­vi­sion inter­view last week.

John Ryd­ing and Con­rad DeQuadros, econ­o­mists at RDQ Eco­nom­ics, said there was noth­ing in the tes­ti­mony to “tip Bernanke’s hand” before the June meet­ing of the Fed’s pol­icy committee.

“Yes, the Fed chair­man said the Fed stands ready to act if Europe poses a threat to the U.S. finan­cial sys­tem or the econ­omy,” they wrote in a note to clients. “How­ever, he gave no specifics.”

Many ana­lysts are wor­ried that the U.S. econ­omy is suf­fer­ing a midyear slump just as in 2010 and 2011. They’re con­cerned in par­tic­u­lar about the job mar­ket. From Decem­ber through Feb­ru­ary, the econ­omy added an aver­age 252,000 jobs a month. But since then, job growth has slowed to a lack­lus­ter 96,000 a month. In May, U.S. employ­ers added just 69,000 jobs — the fewest in a year.

Bernanke said the Fed is still assess­ing the most recent employ­ment data. Like many econ­o­mists, Bernanke sug­gested that a warm win­ter might have prompted some hir­ing that nor­mally would have occurred later. That could have weak­ened hir­ing tem­porar­ily in the spring. If that’s true, hir­ing might bounce back.

Still, Bernanke said some of the win­ter hir­ing might have made up for exces­sive job cuts dur­ing the reces­sion. If so, and if those com­pa­nies have com­pleted such “catch-up” hir­ing, then stronger eco­nomic growth might be needed to boost hir­ing, Bernanke said.

“That is the essen­tial ques­tion we will have to look at,” he told the panel.

The gov­ern­ment said last week that the econ­omy grew at a slug­gish annual rate of 1.9 per­cent in the first three months of 2012.

Paul Edel­stein, an econ­o­mist at IHS Global Insight, said he thought Bernanke didn’t seem alarmed by the weak hir­ing in May.

“His view is that it isn’t a sign that the econ­omy is falling apart,” Edel­stein said.

Bernanke’s mes­sage to finan­cial mar­kets, Edel­stein said, was, “Don’t expect any­thing dras­tic from the Fed at the June meeting.”

That said, if the Fed does announce some new action at its meet­ing later this month, Edel­stein said the most likely step would be to extend a pro­gram, known as Oper­a­tion Twist, that will expire at the end of June.

Under Oper­a­tion Twist, the Fed sells shorter-term secu­ri­ties and buys longer-term bonds. As with other Fed bond pur­chases, the idea has been to drive down long-term rates so that mort­gages, auto loans and other con­sumer and busi­ness loans become more attractive.

The Fed’s pol­icy com­mit­tee has been split between those who favor doing every­thing pos­si­ble to strengthen the econ­omy and reduce unem­ploy­ment, and those more con­cerned about infla­tion risks.

On Wednes­day, Janet Yellen, the vice chair­man of the Fed, Den­nis Lock­hart, the head of the Atlanta regional Fed Bank, and John Williams, pres­i­dent of the San Fran­cisco Fed bank, all sug­gested that the Fed might need to do more to pro­vide support.

But Rep. Kevin Brady, R-Texas, warned at Thursday’s hear­ing against more bond buy­ing. He and other crit­ics worry that ever-lower bor­row­ing rates could even­tu­ally ignite inflation.

“It is my belief that the Fed has done all that it can do and has per­haps done too much,” said Brady, vice chair­man of the committee.

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