Bernanke says US job growth too low
US unemployment remains too high for comfort despite the economy showing signs of strengthening recovery, Federal Reserve chairman Ben Bernanke has said.
In testimony to the US House of Representatives’ Budget Committee that largely echoed a speech he delivered last week, Bernanke also warned about the dangers of unsustainable budget deficits.
But his commitment to continuing the Fed’s programme of quantitative easing has cheered market traders.
Bernanke cited a number of encouraging hints from the labour market, including a drop in the jobless rate to nine per cent in January from 9.8 per cent in November – the biggest two-month drop since 1958.
At the same time, Bernanke expressed concern at the still-anaemic pace of hiring.
“The job market has improved only slowly,” he said, noting the economy had only made up just over one million of the more than eight million jobs lost during the deepest recession in generations.
“This gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants into the labour force and, therefore, not enough to significantly erode the wide margin of slack that remains in our labour market.”
Bernanke said inflation remains quite low in the United States, a tough message to deliver amid headlines of rising food and commodity costs across the globe.
He also said expectations of future inflation had remained “stable,” suggesting little worry a inflationary psychology was building despite rising gasoline costs.
“Inflation is expected to persist below the levels that Federal Reserve policymakers have judged to be consistent” with their mandate, Bernanke repeated.
Nick Serff, a market analyst at City Index, said traders were pleased to hear his continued support for the current QE2 programme.
“His belief that inflation was low has triggered dollar weakness and investors into buying sterling, which charged higher to $1.611 as a result. The sentiment from Bernanke has also lifted equities somewhat in the US and in wider Europe,” Serff said.