In his semi-annual report on monetary policy to Congress on July 21, 2010, Federal Reserve Board Chairman Ben Bernanke remarked on the Fed’s outlook for the U.S. economy that we can expect continued moderate growth, a gradual decline in the unemployment rate, and subdued inflation over the next several years. Specifically, Bernanke forecast U.S. gross domestic product growth of 3 to 3.5 percent in 2010, and roughly 3.5 to 4.5 percent in 2011 and 2012. If the U.S. were coming out of a mild recession, that level of growth would not be too bad. However, coming out of a severe recession, if not a depression, and with unemployment near 10 percent, the forecast GDP growth will not be enough to return the economy to pre-recession levels.
Bernanke acknowledged the challenges. “After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers’ employment and earnings prospects.”
Bernanke also spent some time discussing the various plans to withdraw the economic stimulus the Fed has provided in terms of liquidity in markets through the expansion of its balance sheet. However, he concluded, the economy is not in good enough shape to begin withdrawing those stimulative programs. “Of course, even as the Federal Reserve continues prudent planning for the ultimate withdrawal of extraordinary monetary policy accommodation, we also recognize that the economic outlook remains unusually uncertain. We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.”
Testimony of Fed Chairman Ben S. Bernanke on Semi-Annual Report on Monetary Policy to Congress
Federal Reserve Board Semi-Annual Monetary Policy Report to Congress
Gregg D. Killoren
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