JACKSON HOLE, Wyo. (MNI) – The following are Federal Reserve
Chairman Ben Bernanke’s remarks prepared for the Kansas City Fed’s
Symposium under way Friday:

Good morning. As always, thanks are due to the Federal Reserve Bank
of Kansas City for organizing this conference. This years topic,
long-term economic growth, is indeed pertinent–as has so often been the
case at this symposium in past years. In particular, the financial
crisis and the subsequent slow recovery have caused some to question
whether the United States, notwithstanding its long-term record of
vigorous economic growth, might not now be facing a prolonged period of
stagnation, regardless of its public policy choices. Might not the very
slow pace of economic expansion of the past few years, not only in the
United States but also in a number of other advanced economies, morph
into something far more long-lasting?

I can certainly appreciate these concerns and am fully aware of the
challenges that we face in restoring economic and financial conditions
conducive to healthy growth, some of which I will comment on today. With
respect to longer-run prospects, however, my own view is more
optimistic. As I will discuss, although important problems certainly
exist, the growth fundamentals of the United States do not appear to
have been permanently altered by the shocks of the past four years. It
may take some time, but we can reasonably expect to see a return to
growth rates and employment levels consistent with those underlying
fundamentals. In the interim, however, the challenges for U.S. economic
policymakers are twofold: first, to help our economy further recover
from the crisis and the ensuing recession, and second, to do so in a way
that will allow the economy to realize its longer-term growth potential.
Economic policies should be evaluated in light of both of those
objectives.

This morning I will offer some thoughts on why the pace of recovery
in the United States has, for the most part, proved disappointing thus
far, and I will discuss the Federal Reserves policy response. I will
then turn briefly to the longer-term prospects of our economy and the
need for our countrys economic policies to be effective from both a
shorter-term and longer-term perspective.

Near-Term Prospects for the Economy and Policy

In discussing the prospects for the economy and for policy in the
near term, it bears recalling briefly how we got here. The financial
crisis that gripped global markets in 2008 and 2009 was more severe than
any since the Great Depression. Economic policymakers around the world
saw the mounting risks of a global financial meltdown in the fall of
2008 and understood the extraordinarily dire economic consequences that
such an event could have. As I have described in previous remarks at
this forum, governments and central banks worked forcefully and in close
coordination to avert the looming collapse. The actions to stabilize the
financial system were accompanied, both in the United States and abroad,
by substantial monetary and fiscal stimulus. But notwithstanding these
strong and concerted efforts, severe damage to the global economy could
not be avoided. The freezing of credit, the sharp drops in asset prices,
dysfunction in financial markets, and the resulting blows to confidence
sent global production and trade into free fall in late 2008 and early
2009.

We meet here today almost exactly three years since the beginning
of the most intense phase of the financial crisis and a bit more than
two years since the National Bureau of Economic Researchs date for the
start of the economic recovery. Where do we stand?

There have been some positive developments over the past few years,
particularly when considered in the light of economic prospects as
viewed at the depth of the crisis.

Overall, the global economy has seen significant growth, led by the
emerging-market economies. In the United States, a cyclical recovery,
though a modest one by historical standards, is in its ninth quarter. In
the financial sphere, the U.S. banking system is generally much
healthier now, with banks holding substantially more capital. Credit
availability from banks has improved, though it remains tight in
categories–such as small business lending–in which the balance sheets
of potential borrowers remain impaired. Companies with access to the
public bond markets have had no difficulty obtaining credit on favorable
terms. Importantly, structural reform is moving forward in the financial
sector, with ambitious domestic and international efforts underway to
enhance the capital and liquidity of banks, especially the most
systemically important banks; to improve risk management and
transparency; to strengthen market infrastructure; and to introduce a
more systemic, or macroprudential, approach to financial regulation and
supervision.

In the broader economy, manufacturing production in the United
States has risen nearly 15 percent since its trough, driven
substantially by growth in exports. Indeed, the U.S. trade deficit has
been notably lower recently than it was before the crisis, reflecting in
part the improved competitiveness of U.S. goods and services. Business
investment in equipment and software has continued to expand, and
productivity gains in some industries have been impressive, though new
data have reduced estimates of overall productivity improvement in
recent years. Households also have made some progress in repairing their
balance sheets–saving more, borrowing less, and reducing their burdens
of interest payments and debt. Commodity prices have come off their
highs, which will reduce the cost pressures facing businesses and help
increase household purchasing power.

Notwithstanding these more positive developments, however, it is
clear that the recovery from the crisis has been much less robust than
we had hoped. From the latest comprehensive revisions to the national
accounts as well as the most recent estimates of growth in the first
half of this year, we have learned that the recession was even deeper
and the recovery even weaker than we had thought; indeed, aggregate
output in the United States still has not returned to the level that it
attained before the crisis. Importantly, economic growth has for the
most part been at rates insufficient to achieve sustained reductions in
unemployment, which has recently been fluctuating a bit above 9 percent.
Temporary factors, including the effects of the run-up in commodity
prices on consumer and business budgets and the effect of the Japanese
disaster on global supply chains and production, were part of the reason
for the weak performance of the economy in the first half of 2011;
accordingly, growth in the second half looks likely to improve as their
influence recedes. However, the incoming data suggest that other, more
persistent factors also have been at work.

Why has the recovery from the crisis been so slow and erratic?
Historically, recessions have typically sowed the seeds of their own
recoveries as reduced spending on investment, housing, and consumer
durables generates pent-up demand. As the business cycle bottoms out and
confidence returns, this pent-up demand, often augmented by the effects
of stimulative monetary and fiscal policies, is met through increased
production and hiring. Increased production in turn boosts business
revenues and household incomes and provides further impetus to business
and household spending. Improving income prospects and balance sheets
also make households and businesses more creditworthy, and financial
institutions become more willing to lend. Normally, these developments
create a virtuous circle of rising incomes and profits, more supportive
financial and credit conditions, and lower uncertainty, allowing the
process of recovery to develop momentum.

These restorative forces are at work today, and they will continue
to promote recovery over time. Unfortunately, the recession, besides
being extraordinarily severe as well as global in scope, was also
unusual in being associated with both a very deep slump in the housing
market and a historic financial crisis. These two features of the
downturn, individually and in combination, have acted to slow the
natural recovery process.

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