Bernanke acknowledges economy outperforms Fed’s expectations

WASHINGTON — Chairman Ben Bernanke told lawmakers Wednesday that the U.S. economy has performed better in recent months than the Federal Reserve had expected.

WASHINGTON — Chairman Ben Bernanke told lawmakers Wednesday that the U.S. economy has performed better in recent months than the Federal Reserve had expected. If the trend continues, he said the Fed might have to reassess its outlook for a slow recovery.

Investors appeared to take Bernanke’s more optimistic words as a signal that the Fed is less likely to adopt further steps to boost growth. It could also mean that the Fed could back off its plan to hold its key interest rate near zero until late 2014.

Stocks and bond prices both fell. Analysts said Bernanke’s speech was notable for what it didn’t include: any mention of a new round of government bond-buying.

Speaking at a hearing of the House Financial Services Committee, Bernanke cautioned that the Fed doesn’t expect the sharp drops in unemployment to continue this year and it plans to stick with its policy on interest rates.

Still, he said the Fed’s late-2014 target for any increase in interest rates is tied to the economy’s health and the Fed might have to adjust its target if the economic outlook improves.

“The policy is conditional,” Bernanke said in response to a question on the topic. “It is based on what we know now.”

A spike in inflation could also force the Fed to reconsider that policy. Gasoline prices are rising again. Bernanke said that will likely push inflation up temporarily while depressing consumers’ purchasing power.

Still, he said that the Fed continued to believe that longer-term inflation would remain subdued. He said maintaining a policy that keeps rates low for an extended period “tended to put downward pressure on longer-term interest rates.”

Some analysts took Bernanke’s remarks to mean the Fed is less likely to buy more Treasury or mortgage bonds to try to drive down long-term rates.

“The possibility of further purchases of mortgage-backed securities by the Fed to help revive housing had been widely discussed in recent weeks,” said Kevin Logan, chief U.S. economist at HSBC. “Bernanke made no mention of this possibility or of any type of quantitative easing.”

The Fed has held its benchmark interest rate at a record low near zero since December 2008.

Lawmakers and some economists have begun to question whether keeping rates that low for another three years will heighten the risk of inflation, especially if the economy continues to improve and companies keep hiring.

The unemployment rate has fallen for five straight months and employers have added an average of 200,000 net jobs per month from November through January. Many economists are predicting that trend carried over into February.

Shortly before Bernanke spoke Wednesday, the government said the economy grew at a solid 3 per cent annual rate in the final three months of last year. That was slightly better than its initial estimate. And it said income in the last six months of 2011 grew faster than previously thought.

Consumer confidence rose this month to the highest point in a year, which should lead to more spending and faster growth. Stocks have been surging — the Dow Jones industrial average on Wednesday closed above 13,000 for the first time since May 2008.

Bernanke acknowledged that unemployment, now at 8.3 per cent, has fallen faster than the Fed had predicted. He says the Fed doesn’t expect the rate to continuing falling as fast this year. But if it does, he says the Fed would reassess its economic outlook.

“In light of somewhat different signals received recently from the labour market than from indicators of final demand and production … it will be especially important to evaluate incoming information to assess the underlying pace of the economic recovery,” Bernanke said.

———

AP Economics Writer Derek Kravitz contributed to this report.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Marcus Golczyk, with Taco Monster, hands food to a customer during Food Truck Drive and Dash in the Westerner Park parking lot in Red Deer Friday afternoon. The drive-thru event will run every Thursday from 4-7 p.m. and Friday from 11 a.m. to 2 p.m. through June. Photo by SEAN MCINTOSH/Advocate staff
Food Truck Fridays, Food Truck Drive and Dash return in Red Deer

Red Deerians are able to take in a drive-thru food truck experience… Continue reading

Don and Gloria Moore, of Red Deer, are set to celebrate their 70th anniversary later this month. (Contributed photo)
Red Deer couple to celebrate 70th anniversary

Red Deer couple Don and Gloria Moore are set to celebrate their… Continue reading

Chris Scott, owner of The Whistle Stop Cafe, was put in handcuffs after an anti-restriction protest Saturday in the parking lot of the business. (Screenshot via The Whistle Stop Facebook page)
UPDATE: Central Alberta cafe owner arrested after anti-restriction protest

The owner of a central Alberta cafe, which was the site of… Continue reading

Alberta has 1,910 active cases of COVID-19 as of Wednesday. Red Deer is reporting five active cases, with 108 recovered. (File photo)
Red Deer now has 911 active COVID-19 cases

Central zone has 2,917 active cases

Red Deer Regional Hospital Centre's expansion project is still a high priority, says Alberta Infrastructure Minister Prasad Panda. (File photo by Advocate staff)
Red Deer hospital ICU admissions stable, but rising, says surgeon

The Red Deer Regional Hospital Centre’s intensive care unit is in better… Continue reading

FILE - A firefighter wears a mask as he drives his truck. THE CANADIAN PRESS/Jonathan Hayward, File
VIDEO: Flames rip through Edmonton-area seniors complex, but no fatalities

ST. ALBERT, Alta. — Fire has destroyed part of a retirement complex… Continue reading

A caribou grazes on Baffin Island in a 2008 file photo. A last-ditch attempt to save some of Canada's vanishing caribou herds is a step closer after a scientific review panel's approval of a plan to permanently pen some animals and breed them to repopulate other herds. THE CANADIAN PRESS/AP-Kike Calvo via AP Images
Parks Canada captive caribou breeding proposal gets OK from scientific review panel

JASPER, Alta. — A last-ditch attempt to save some of Canada’s vanishing… Continue reading

The smouldering remains of houses in Slave Lake, Alta., are seen in a May 16, 2011, file photo. The wildfire that is devastating large swaths of the northern Alberta city of Fort McMurray comes just five years after another blaze destroyed 400 buildings and left 2,000 people homeless in Slave Lake, Alberta. THE CANADIAN PRESS/Ian Jackson
Ten years later: Five things to know about the Slave Lake wildfire

A wildfire burned about one-third of Slave Lake in northern Alberta in… Continue reading

Edmonton Oilers' Connor McDavid (97) celebrates his 100th point this season with Leon Draisaitl (29) against the Vancouver Canucks during second period NHL action in Edmonton on Saturday, May 8, 2021.THE CANADIAN PRESS/Jason Franson
Edmonton Oilers captain Connor McDavid races to 100 points this NHL season

Edmonton Oilers forward Connor McDavid sprinted to a 100-point NHL season and… Continue reading

A Foodora courier is pictured as they pick up an order for delivery from a restaurant in Toronto, Thursday, Feb. 27, 2020. THE CANADIAN PRESS/Nathan Denette
Two-year EI review needed to buy time for needed tech upgrades, Qualtrough says

OTTAWA — Canada’s employment minister says a budgetary pledge for funding to… Continue reading

A person wears a face mask as they walk through McGill University during light snowfall in Montreal, Sunday, December 20, 2020 as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Some universities say no to proof of vaccination requirement

A COVID-19 vaccine likely won’t be a requirement to return to the… Continue reading

Prime Minister Justin Trudeau and Deputy Prime Minister and Minister of Finance Chrystia Freeland, participate in a virtual discussion with seniors from Residence Memphremagog in Magog, Que., from Ottawa on Monday, May 3, 2021. Liberals, Conservatives and New Democrats are on the move in advance of a potential election this year, recruiting candidates, training volunteers and grappling with how to kiss babies and press the flesh in a virtual, pandemic-restricted world. THE CANADIAN PRESS/Sean Kilpatrick
Grappling with how to press the virtual flesh, parties gear up for election showdown

OTTAWA — The three main national parties are firing up their election… Continue reading

Nuns of Mother Teresa’s Missionaries of Charity, carry some of her relics during a vigil of prayer in preparation for the canonization of Mother Teresa in the St. John in Latheran Basilica at the Vatican, Friday, Sept. 2, 2016. In which city did she do much of her charitable work? (AP Photo/Gregorio Borgia)
QUIZ: How much do you know about these motherhood issues?

In honour of Mother’s Day, take this 10-question quiz

Dr. Robert Strang, Nova Scotia's chief medical officer of health, is setting off a social media reaction with his calls to stop non essential shopping, such as "buying sandals at Costco", with this photo of his worn sandals, which he published to social media on Saturday, May 8, 2021. THE CANADIAN PRESS/HO-Dr. Robert Strang, *MANDATORY CREDIT*
Nova Scotia’s top doctor sparks meme with caution on non-essential shopping

HALIFAX — Nova Scotia’s top doctor has launched a social media meme… Continue reading

Most Read