By Brai Odion-Esene

WASHINGTON (MNI) – The Federal Reserve’s accommodative monetary
policies are still needed, Federal Reserve Chairman Ben Bernanke said
Tuesday, given an employment situation that remains “far from normal,”
an economic recovery that is proceeding at a “frustratingly slow” pace,
and inflation that is likely to prove transitory.

In remarks prepared for delivery to the American Bankers
Association’s International Monetary Conference in Atlanta, Bernanke
also assured that the Federal Open Market Committee would respond “as
necessary” if its expectation for inflation to remain subdued were
proven wrong.

“U.S. economic growth so far this year looks to have been somewhat
slower than expected,” Bernanke noted in his remarks, but added that
once the effects of Japan supply chain disruptions dissipate in coming
months, and some moderation is seen in gasoline prices, “growth seems
likely to pick up somewhat in the second half of the year.”

So while moving in the right direction, “the economy is still
producing at levels well below its potential; consequently,
accommodative monetary policies are still needed,” Bernanke declared.

The ability and willingness of households to spend will be an
important determinant of the pace at which the economy expands in coming
quarters, Bernanke said. Right now, households are facing what he called
“significant headwinds” in the form of increases in food and energy
prices, declining home values, continued tightness in some credit
markets, and still-high unemployment.

“Until we see a sustained period of stronger job creation, we
cannot consider the recovery to be truly established,” he said.

The Fed chairman also followed the recent trend adopted by Fed
officials of affirming the central bank’s committment to price
stability.

“The longer-run health of the economy requires that the Federal
Reserve be vigilant in preserving its hard-won credibility for
maintaining price stability,” he said.

And although most FOMC participants currently view the recent
increase in inflation as transitory and expect inflation to remain
subdued in the medium term, Bernanke said the FOMC would spring into
action should that forecast prove wrong.

“Particularly if signs were to emerge that inflation was becoming
more broadly based or that longer-term inflation expectations were
becoming less well anchored, the Committee would respond as necessary,”
he said.

But for now, Bernanke said there is not much evidence that
inflation is becoming “broad-based or ingrained” in the U.S. economy.

“Under all circumstances, our policy actions will be guided by the
objectives of supporting the recovery in output and employment while
helping ensure that inflation, over time, is at levels consistent with
the Federal Reserves mandate,” he said.

With regard to the jobs picture in the U.S., Bernanke said while
the economic recovery, overall, appears to be continuing at a moderate
pace, it remains both uneven across sectors and “frustratingly slow”
from the perspective of millions of unemployed and underemployed
workers.

“The jobs situation remains far from normal,” he said, with the
very high level of long-term unemployment being of particular concern.

Even with the jobs market remaining quite weak and its progress
uneven, Bernanke said overall there are signs of gradual improvement.

And despite May’s dismal jobs report — with only 83,000 private
jobs added — “I expect hiring to pick up from last month’s pace as
growth strengthens in the second half of the year,” Bernanke said,
before adding, “the recent data highlight the need to continue
monitoring the jobs situation carefully.”

Bernanke said the business sector generally presents a more upbeat
picture, and assured that, going forward, investment and hiring in the
private sector should be facilitated by the ongoing improvement in
credit conditions.

Bernanke also used the opportunity to repeat calls for lawmakers to
address the fiscal situation in the U.S., warning that to have a healthy
economic future, policymakers urgently need to put the federal
government’s finances on a sustainable trajectory.

At the same time, however, “a sharp fiscal consolidation focused on
the very near term could be self-defeating if it were to undercut the
still-fragile recovery,” he warned.

“Consequently, the appropriate response is to move quickly to enact
a credible, long-term plan for fiscal consolidation,” Bernanke said.

** Market News International Washington Bureau: 202-371-2121 **

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