July 17 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said progress in reducing unemployment is likely to be “frustratingly slow” and repeated the Fed is ready to take further action to boost the recovery, while refraining from discussing specific steps.
“The U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year,” Bernanke said today in testimony for delivery to the Senate Banking Committee in Washington. The Fed is “prepared to take further action as appropriate to promote a stronger economic recovery,” he said.
Bernanke said growth is slowing as business investment cools in response to the European crisis and the prospect of fiscal tightening in the U.S. At the same time, households are restraining spending as unemployment remains elevated and credit is hard to get.
Bernanke and his colleagues on the Federal Open Market Committee are considering whether the economy will need additional stimulus to reduce a jobless rate stuck above 8 percent since February 2009. Minutes of their June meeting show that a few participants believed the Fed will need to do more, while several others said new easing would be warranted if growth slows, risks intensify or inflation seems likely to fall persistently below the Fed’s 2 percent target.
Recent economic data have had a “generally disappointing tone,” Bernanke said in the first of two days testifying before Congress as part of the central bank’s semiannual monetary policy report. The economy probably expanded at less than a 2 percent annual rate in the second quarter, he said.
The Fed last month sought to hold down borrowing costs and spur economic growth by extending through the end of this year its so-called Operation Twist program swapping shorter-term Treasury securities with longer-term debt.
Though he offered no specific policy ideas, Bernanke said the Fed is prepared to take further action “as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Bernanke told lawmakers that U.S. fiscal policies are on an “unsustainable path” that must be corrected with a “credible” plan to control deficits, while avoiding damage to the recovery from spending cuts and tax increases that will take effect next year if Congress doesn’t act.
The so-called fiscal cliff would push the economy into a “shallow recession” early next year, Bernanke said, citing an estimate from the Congressional Budget Office. “Additional negative effects” would result from public uncertainty about spending plans, including the debt ceiling, he told lawmakers.