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Bernanke acknowledges growth will likely be slow

WASHINGTON — Federal Reserve chairman Ben Bernanke acknowledged Wednesday, after the Fed downgraded its 2011 and 2012 forecasts, that the pace of economic growth is likely to be “frustratingly slow.”

WASHINGTON — Federal Reserve chairman Ben Bernanke acknowledged Wednesday, after the Fed downgraded its 2011 and 2012 forecasts, that the pace of economic growth is likely to be “frustratingly slow.”

Bernanke said the U.S. central bank is looking for growth and the job market to improve gradually, but at a sluggish pace over the next two years.

The Fed now predicts the U.S. economy will grow at a scant 1.6 per cent to 1.7 per cent for 2011. For 2012, it thinks growth will range between 2.5 per cent and 2.9 per cent.

Both projections are roughly a full percentage point lower than the Fed’s previous forecast in June.

They point to weaker U.S. growth this year than projected for Canada by its central bank, which last week lowered its previous 2011 forecast by 0.7 percentage point to 2.1 per cent.

However, the Bank of Canada’s forecast for 2012 growth is only 1.9 per cent above this year’s, also 0.7 percentage point below its july forecast and substantially below the Fed’s prediction for the United States next year.

The Canadian economy is highly dependent on trade with the United States, although China and other emerging Asian economies have been increasingly important customers for Canadian resources.

Bernanke cited the debt crisis in Europe as a particular concern. He said it could have adverse effects on confidence and growth. As a result, the central bank is closely monitoring the situation, he said.

When asked if the Fed would purchase more mortgage-backed securities to help the depressed housing market, Bernanke said that was a “viable option.” But he declined to say if, or when, the Fed would pursue such action.

“We remain prepared to take action as appropriate to make sure the recovery continues,” Bernanke said.

Bernanke’s comments came at his third news conference this year, a practice he started in April to provide more background on the Fed’s actions and its thinking behind its latest economic forecast.

The U.S. unemployment rate has been stuck near nine per cent for more than two years. The Fed doesn’t see that changing this year. It predicts it won’t fall below 8.5 per cent next year. In June, the Fed had predicted unemployment would drop to as low as 7.8 per cent in 2011.

The new Fed forecast takes into account the substantial slowdown in growth that occurred earlier this year.

Bernanke said he sympathized with Occupy Wall Street protesters complaints about the state of the economy.

“I am dissatisfied with the state of the economy,” Bernanke said. “Unemployment is too high.”

But the Fed chairman said criticism from Republicans, both in Congress and those running for president, was not valid. They have charged that the central bank’s efforts have set the stage for higher inflation in the future.

Bernanke said he felt the central bank had a very good record on inflation. He said where the Fed has fallen short was in dealing with unemployment.

He declined to comment directly on a letter senior Republican leaders sent in September, which cautioned the central bank not to take further steps to lower interest rates.

At the September meeting, the Fed agreed to shuffle its portfolio to try and lower long-term interest rates.

“We listen to everybody’s input,” Bernanke said. “The most important thing is that we are free to make a decision based on the interest of the American people. That’s what we are going to do.”