Federal Reserve Chairman Ben S. Bernanke speaks at the International Monetary… (Chris Rank, Bloomberg )
Reporting from Washington — Despite recent economic news that revived fears of a double-dip recession, Federal Reserve Chairman Ben S. Bernanke said the recovery was on track and likely to pick up in the second half of this year.
Economic growth has been uneven and weaker than expected, Bernanke acknowledged in his first public remarks on the economy since a string of disappointing reports on American housing, manufacturing, consumer spending and job creation.
Noting a "loss of momentum" in the labor market, he said the recovery was proving to be "frustratingly slow" for millions of unemployed and underemployed workers.
Nonetheless, the Fed chief in a speech Tuesday stuck with his assessment that the recovery was continuing at a moderate pace and that the Fed's policy needed no major changes.
He attributed some of the slowdown to higher oil prices and the effects of Japan's earthquake and tsunami, factors that he said were likely to stabilize or fade in the coming months.
Earlier in the day, President Obama said that despite "some head winds" hitting the economy recently, he was not worried about a double-dip recession.
"I am concerned about the fact that the recovery that we're on is not producing jobs as fast as I want it to happen," Obama said in a joint news conference with German Chancellor Angela Merkel.
In the wake of the poor economic data, some analysts have speculated that the central bank, which has pumped billions into the financial system to spur growth, may move to extend a big bond-buying program that's slated to expire at the end of this month. But there was no hint of that in Bernanke's remarks.
Investors and analysts had widely expected that his comments at a conference of bankers in Atlanta would assuage the markets, coming just a few days after the Labor Department's report that unemployment rose to 9.1% last month with just 54,000 jobs added.
But Wall Street's immediate reaction wasn't favorable: Bernanke's comments wiped out a small stock market rally. After gaining nearly 90 points, the Dow Jones industrial average ended down 19 points Tuesday at 12,071, off nearly 6% since its three-year high of 12,811 in late April.
Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi, said after the speech that Bernanke sounded confident that growth in gross domestic product — the broadest measure of economic output — would be back above 3% in the second half of the year. GDP grew at an annual rate of 1.8% in the first quarter.
"The economy is facing new head winds from $4 gasoline, but the chairman has not thrown in the towel on the outlook," Rupkey said in a note to clients.
Bernanke did not give specific new projections on economic growth and unemployment, but some of his central bank colleagues already have begun to mark down their forecasts.
In the Fed's most recent economic projections, in late April, most officials said they expected GDP to expand 3.1% to 3.3% this year, with growth accelerating to as much as 4.2% next year.
Private analysts have taken a sharper ax to their forecasts, shaving growth to as low as 2%, which wouldn't be enough to bring down the jobless rate.
With unemployment near double digits for many months, the Fed has come under criticism for not doing enough to bolster the economy and maximize employment, one of the central bank's two mandates, along with controlling inflation.
Bernanke does not think inflation is a threat, a point he reiterated Tuesday. But he also indicated in the past that it was unclear whether the payoff from further Fed stimulus would outweigh the risks of creating a tinderbox for runaway inflation in the future.
"Monetary policy cannot be a panacea," he said.
Despite the weak and uneven pace of job growth, Bernanke said, "overall, we have seen signs of gradual improvement."
Although the private sector added just 83,000 jobs in May, he noted that private payrolls grew an average of 180,000 a month in the first five months this year, up from 140,000 in the last four months last year and less than 80,000 a month in the four months before that.
"I expect hiring to pick up from last month's pace as growth strengthens in the second half of the year," Bernanke said, though he added this caveat: The recent data "highlight the need to continue monitoring the jobs situation carefully."
If jobs don't pick up, Bernanke made clear, it will further damp consumer spending. And with private consumption accounting for about 70% of U.S. economic activity, that would spell trouble for the whole economy.
"Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," Bernanke said.
In comparison to the employment picture, he said, the business sector looks more upbeat. Capital spending continues to expand and companies are benefiting from growing sales in foreign markets.
On the other hand, Bernanke said, the construction industry remains troubled. And the government sector, which had helped lift the economy from recession, is now constraining the recovery.