JACKSON HOLE, Wyo. (MNI) – The following is the text of the remarks
of Federal Reserve Chairman Ben Bernanke prepared for his Jackson Hole
address Friday morning:
The annual meeting at Jackson Hole always provides a valuable
opportunity to reflect on the economic and financial developments of the
preceding year, and recently we have had a great deal on which to
reflect. A year ago, in my remarks to this conference, I reviewed the
response of the global policy community to the financial crisis.1
Notwithstanding some important steps forward, however, as we return once
again to Jackson Hole I think we would all agree that, for much of the
world, the task of economic recovery and repair remains far from
complete. In many countries, including the United States and most other
advanced industrial nations, growth during the past year has been too
slow and joblessness remains too high. Financial conditions are
generally much improved, but bank credit remains tight; moreover, much
of the work of implementing financial reform lies ahead of us. Managing
fiscal deficits and debt is a daunting challenge for many countries, and
imbalances in global trade and current accounts remain a persistent
problem. On the whole, when the eruption of the Panic of 2008 threatened
the very foundations of the global economy, the world rose to the
challenge, with a remarkable degree of international cooperation,
despite very difficult conditions and compressed time frames. And when
last we gathered here, there were strong indications that the sharp
contraction of the global economy of late 2008 and early 2009 had ended.
Most economies were growing again, and international trade was once
again expanding.
This list of concerns makes clear that a return to strong and
stable economic growth will require appropriate and effective responses
from economic policymakers across a wide spectrum, as well as from
leaders in the private sector. Central bankers alone cannot solve the
worlds economic problems. That said, monetary policy continues to play
a prominent role in promoting the economic recovery and will be the
focus of my remarks today. I will begin with an update on the economic
outlook in the United States and then review the measures that the
Federal Open Market Committee (FOMC) has taken to support the economic
recovery and maintain price stability. I will conclude by discussing and
evaluating some policy options that the FOMC has at its disposal, should
further action become necessary.
The Economic Outlook
As I noted at the outset, when we last gathered here, the deep
economic contraction had ended, and we were seeing broad stabilization
in global economic activity and the beginnings of a recovery. Concerted
government efforts to restore confidence in the financial system,
including the aggressive provision of liquidity by central banks, were
essential in achieving that outcome. Monetary policies in many countries
had been eased aggressively. Fiscal policy–including stimulus packages,
expansions of the social safety net, and the countercyclical spending
and tax policies known collectively as automatic stabilizers–also
helped to arrest the global decline. Once demand began to stabilize,
firms gained sufficient confidence to increase production and slow the
rapid liquidation of inventories that they had begun during the
contraction. Expansionary fiscal policies and a powerful inventory
cycle, helped by a recovery in international trade and improved
financial conditions, fueled a significant pickup in growth.
At best, though, fiscal impetus and the inventory cycle can drive
recovery only temporarily. For a sustained expansion to take hold,
growth in private final demand– notably, consumer spending and business
fixed investment–must ultimately take the lead. On the whole, in the
United States, that critical handoff appears to be under way.
However, although private final demand, output, and employment have
indeed been growing for more than a year, the pace of that growth
recently appears somewhat less vigorous than we expected. Notably, since
stabilizing in mid-2009, real household spending in the United States
has grown in the range of 1 to 2 percent at annual rates, a relatively
modest pace. Households caution is understandable. Importantly, the
painfully slow recovery in the labor market has restrained growth in
labor income, raised uncertainty about job security and prospects, and
damped confidence. Also, although consumer credit shows some signs of
thawing, responses to our Senior Loan Officer Opinion Survey on Bank
Lending Practices suggest that lending standards to households generally
remain tight.
The prospects for household spending depend to a significant extent
on how the jobs situation evolves. But the pace of spending will also
depend on the progress that households make in repairing their financial
positions. Among the most notable results to emerge from the recent
revision of the U.S. national income data is that, in recent quarters,
household saving has been higher than we thought–averaging near 6
percent of disposable income rather than 4 percent, as the earlier data
showed.
-more-
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