In his first appearance before Congress since he won a second term as chairman, Bernanke was downbeat on the economic recovery, warning the current 10 per cent rate of unemployment would decline only slowly to between 6.5 per cent and 7.5 per cent by the end of 2012, while flat new housing starts and a sharp decline in commercial construction reflected “poor fundamentals and continued difficulty in obtaining financing”.
Bernanke said the recovery was “nascent”, saying long-term recovery would depend on private sector demand for goods and services.
“Economic conditions....are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” he said.
His words reassured markets that the Fed’s move last week to raise its emergency lending rate was not a move towards tighter policy, boosting the Dow Jones Industrial Average to close 0.9 per cent higher at 10,374.16.
Bernanke’s speech came as the Commerce Department said sales of newly built US single-family homes fell by 11.2 per cent to 309,000 in the 12 months to January – the lowest since records began in 1963.