Bernanke: Recovery finally taking hold

By Chris Isidore, senior writer


NEW YORK (CNNMoney) -- The U.S. economic recovery is finally getting stronger, Federal Reserve Chairman Ben Bernanke said Friday.

Bernanke, in testimony before the Senate Budget Committee, said there is increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.

"Overall the pace of economic recovery seems likely to be moderately stronger in 2011 than it was in 2010," he said.

But he said a rebound in employment remains elusive, and that unemployment is likely to remain close to 8% two years from now.

"Persistently high unemployment, by damping household income and confidence, could threaten the strength and sustainability of the recovery," he said.

The remarks came just an hour after the Labor Department reported that unemployment had dropped to 9.4% in December from 9.8%. Still, the number of jobs added was lower than expectations.

Bernanke said it is important that Congress change fiscal policy over the long term to address the growing federal deficit.

"It is widely understood that the federal government is on an unsustainable fiscal path," he said. "Yet, as a nation, we have done little to address this critical threat to our economy."

However, he cautioned against too much belt-tightening now

"In their planning for the near term, fiscal policymakers will need to continue to take into account the low level of economic activity and the still-fragile nature of the economic recovery," he said.

It was Bernanke's first trip to Capitol Hill since the Fed announced plans in November to buy $600 billion in additional long-term Treasuries to try to spur greater economic activity. The policy sparked widespread criticism, especially from conservative economists and lawmakers, but Bernanke faced relatively few questions about the policy known as quantitative easing, or QE2 for short, during the questioning.

He defended the policy, saying he didn't believe it risked inflation. He said that the rise in oil prices since the start of the policy is due to greater demand globally, not a weakening of the dollar or a shift of investment into commodities in reaction to the policy.

"I think we are contributing to a better outlook for the economy," he said in response to questioning.

He did clarify his recent statements about being 100% confident the Fed could unwind the stimulus it has pumped into the U.S. economy in recent years without a return to unwanted levels of inflation. He said he was only trying to say that the Fed has the tools it needs to avoid a return of inflation, promising that it will succeed in its goal.

"I'm not trying to claim omniscience," he said. "It's always possible we'll move too slow or too quick." To top of page

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