Bernanke says some economic problems may persist

AP News
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Posted: Jun 22, 2011 5:04 PM
Bernanke says some economic problems may persist

Federal Reserve Chairman Ben Bernanke warned Wednesday that some of the problems that are slowing the U.S. economy could persist into next year.

Bernanke said at a news conference that the slowdown could be due, in part, to the depressed housing market and other factors that aren't likely to fade soon.

"We don't have a precise read on why this slower pace of growth is persisting," Bernanke said. "Maybe some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector ... some of the headwinds may be stronger and more persistent than we thought."

Bernanke's comments came as the Fed lowered its forecast for growth and raised its expectation for unemployment this year. The weaker outlook and Bernanke's acknowledgment that some of the problems may persist into 2012 suggested that the Fed recognizes the economy is struggling.

"The Fed is well aware now that the economy has slowed," said Lyle Gramley, senior economic adviser with Potomac Research Group. "They are not at all sure where the economy is going."

Though the Fed said it was ending its $600 billion Treasury bond buying program, Bernanke didn't rule out another program of bond purchases if the economy deteriorated further.

"We are prepared to take additional actions if conditions warrant," he said.

Asked about the prolonged slump in housing, which is weighing on the economy, Bernanke said, "The housing sector is very important to the overall recovery, so we pay a lot of attention to that."

He didn't outline any new initiatives to support the home-buying market.

Bernanke described the debt crisis in Greece as a "very difficult situation." He said that if Greece defaulted on its debt, the impact would go beyond Europe and threaten the global economy.

In answer to another question, Bernanke said the effect on financial institutions would likely be "very small." But he said a spiraling Greek debt crisis that roiled financial markets would pose more severe threats.

The Fed chairman made the comments at his second news conference of the year. Under a new Fed policy, he plans to take questions from reporters four times each year.

Bernanke was asked about the potential timetable for the Fed to keep its main interest rate near zero for "an extended period" to stimulate the economy. He said the continued use of "extended period" in the Fed's statements meant it's at least two or three meetings away from raising rates. The Fed meets every six to eight weeks.

Most private economists say they think the Fed won't begin raising rates for another full year.