‘Economic recovery proceeding at a moderate pace’

Observing that America’s economic recovery is proceeding at a moderate pace, the US Federal Reserve Board Chairman, Mr Ben Bernanke, has said the central bank might need to intervene if policymakers enact short-term spending cuts that hurt growth.

“If the changes are focused entirely on the short run, then they might have some consequences for growth. In that case, the Federal Reserve, as always, is going to try to set monetary policy to meet our mandate, will take those into account appropriately,” Mr Bernanke said in his first press conference on Wednesday.

But so far, he has not seen any fiscal changes that have really changed the US near-term outlook, he added.

“If Congress and the administration are able to make credible commitments to cutting programmes or in any way changing the fiscal profile going forward over a long period of time, that is the most constructive way to address what is in fact a long-run problem,” he said.

Responding to questions, the Fed Chairman said most of the factors that accounted for the slower growth in the first quarter appear to be transitory.

“They include things like, for example, lower defence spending than was anticipated, which will presumably be made up in a later quarter; weaker exports, and given the growth in the global economy, we expect to see that pick up again; and other factors, like weather and so on,” he said.

“Now, there are some factors there that may have a longer-term implication. For example, construction, both residential and non-residential, was very weak in the first quarter and that may have some implications going forward.

“So I would say that most of the slowdown in the first quarter is viewed by the committee as being transitory,” he said.

Noting that America is in a moderate recovery, Mr Bernanke said the US will be looking very carefully first to see if that recovery is indeed sustainable.

“We will also be looking very closely at the labour market. We’ve seen improvement in the labour market in the first quarter relative to the latter part of last year, but we’d like to see continued improvement, more job creation going forward,” he said.

“At the same time, we’re also looking very carefully at inflation, the other part of our mandate. Our expectation is that inflation will come down and towards a more normal level.

But we’ll be watching that carefully and also watching inflation expectations, which are important, that remain well anchored, if we’re going to see inflation remain under good control,” he added.

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