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Fed chief Bernanke maintains cautious approach on the economy

The Fed chairman is expected to push to keep interest rates near zero for an 'extended period,' taking a sober stance despite a surprisingly upbeat report on unemployment.

December 08, 2009|By Don Lee

Reporting from Washington — Despite last week's surprisingly positive report on jobs, Federal Reserve Chairman Ben S. Bernanke remains cautious about the economic recovery and suggested Monday that he would push to keep interest rates near zero for an "extended period."

In a speech at the Economic Club of Washington, Bernanke said the job market remained weak, and he maintained a sobering outlook for unemployment in the foreseeable future -- even after Friday's upbeat employment report.

That data showed the jobless rate dropping slightly to 10% from 10.2% in October and employers shedding 11,000 jobs last month, far less than what economists had projected.

"Economic forecasts are subject to great uncertainty, but my best guess at this point is that we will continue to see modest economic growth next year -- sufficient to bring down the unemployment rate, but at a pace slower than we would like," Bernanke said.

In a question-and-answer session, Bernanke said he did not expect to see a double-dip recession, that is, for economic output to contract again after resuming growth in the third quarter following four straight quarters of decline. But a "vigorous snap-back [is] somewhat less likely," he said, citing tight credit conditions and the sluggish job market.

In that environment, Bernanke said he expected inflation to remain subdued and that it could even "move lower from here." The Fed has held its benchmark short-term interest rate near zero since last December.

Fed officials will meet Dec. 15 and 16 to discuss monetary policy.

As he has for months, Bernanke, who is awaiting confirmation for a second term as chairman, sought to reassure financial markets that the Fed would remain vigilant for signs of inflation and that it could act effectively to withdraw its extraordinary interventions during the financial crisis.

Those programs have expanded the Fed's balance sheet to $2.2 trillion, from about $900 billion before the economic crisis, as it has essentially printed money to buy various debts and securities. That has raised concerns that excessive liquidity in the economy will lead to spiraling inflation.

don.lee@latimes.com

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