By Alyce Andres-Frantz

INDIANAPOLIS (MNI) – Federal Reserve Chairman Ben Bernanke Monday
said slow growth and output in the United States has made it difficult
to make progress on employment.

“The problem is really not with the level of unemployment, but
rather growth not fast enough,” Bernanke during a question and answer
session following a speech in Indianapolis.

He gave a keynote address titled ‘Five Questions about the Federal
Reserve and Monetary Policy’ to approximately 2,000 attendees hosted by
the Economics Club of Indiana.

“We are just not seeing normal strength that would be seen at this
point in the business cycle,” Bernanke said of the level of employment.

Bernanke said he expects the economy to continue to grow, albeit at
a rate of 1.5% to 2%.

“That is not enough to lower employment and it does not do anything
to eat into backlog of employment,” Bernanke told the audience.

While not concerned about recession, Bernanke said “growth is too
low to put people back to work,” and noted with concern the risk in
creating a “permanent group of people that are not fulfilling potential
in labor markets.”

Bernanke said the lack of strength the U.S. labor markets is
multifaceted.

In addition to low U.S. growth and output, Bernanke noted that
downsizing and spending cuts associated with state and local governments
have contributed to the inability of the labor markets to recover.

Fiscal issues in the U.S. have been part of the reason for slow
growth he added.

Sluggish housing is also a contributor, Bernanke said.

While the housing market currently “is improving,” the double
whammy of the housing collapse and the financial crisis created major
problems with labor market.

Furthermore, the EU crisis is contributing to the lack of hiring in
the U.S., Bernanke told the audience.

Bernanke said the Fed is “watching situation in Europe,” noting the
complexity of the crisis given the need for consensus among the 17
eurozone members.

He noted that so far Europe has been able to avoid “a major
blow-up,” and said he is confident that they will continue to do so. If
problems in Europe were to increase, however, the effects would
certainly be felt here, Bernanke warned.

Bernanke said “the ECB must keep stability in the markets,” and
said while its current actions will “provide time,” it is “important for
countries within EU to provide structural changes.”

On monetary policy and its impact on the U.S. currency, Bernanke
said “I do not see any inconsistencies with Fed policy and a strong
dollar.”

“The biggest factor effecting the dollar is fear,” Bernanke said
adding that the level of the U.S. dollar “is about where it was before
crisis.”

Furthermore, Bernanke said “the markets expect inflation to stay
around 2% going forward,” which is reflective of a high amount of
confidence in the Fed. Moreover, low rates for borrowing does not
suggest a situation of high inflation.”

Bernanke noted several times during the question and answer session
that the Fed was “aggressive” at the very early stages of the financial
crisis, which prevented a collapse of banking system.

Bernanke said there were lessons learned from Japan in that early
and aggressive monetary policy actions are best.

–email: aandres@mni-news.com

** MNI Chicago Bureau: (708) 784-1849 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$,M$X$$$,MN$FX$,MAUDS$]