WASHINGTON — Federal Reserve Chairman Ben S. Bernanke, offering a more hopeful outlook on the grim jobs picture than many economists, projected that the U.S. unemployment rate would peak at the end of this year.
Although economists generally expect the jobless rate, which hit 9.5% in June, to keep rising into the first half of next year, Bernanke suggested that the labor market could begin a recovery sooner.
Even so, Bernanke told lawmakers Tuesday that hiring would not bounce back fast.
"We have a very long haul here," he said in response to a question during the Fed's semiannual monetary policy report to Congress. "Unemployment is going to stay high for quite a while, and so it's not going to feel really like a strong economy."
In his prepared remarks, Bernanke noted recent improvements in credit markets and other financial conditions and predicted that economic growth would turn positive in the second half of this year, gradually recovering next year and accelerating in 2011.
But he raised concerns about consumer spending, which accounts for about 70% of the U.S. gross domestic product, saying that it would be constrained by job insecurity, tight credit and declining home prices. The central bank chairman said foreclosures also were headed higher.
"The combination of unemployment and falling house prices -- the double trigger -- does create a very high rate of foreclosures," he said. "Our assessment of the foreclosures is that it's likely to peak in the second half of 2009, corresponding with the peak in the unemployment rate and, perhaps, be somewhat less in 2010."
Given the fragile economic conditions, Bernanke reiterated that the key federal funds rate was likely to remain at "exceptionally low levels for an extended period." The Fed has maintained the rate that banks charge one another for overnight loans near zero since December.
At the same time, Bernanke took great pains to allay concerns that the Fed's extraordinary policy measures to boost the economy during the crisis, including programs to buy billions of dollars of Treasury and mortgage-backed securities, would lead the nation down the path of unstoppable inflation.
In remarks to lawmakers and in a 1,300-word opinion article in Tuesday's Wall Street Journal, Bernanke laid out a number of steps that he said the Fed could take to tighten policy in "a smooth and timely manner."
