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Economic recovery 'close to faltering,' Ben Bernanke tells Congress

Federal Reserve Chairman Ben Bernanke offers sobering data to Congress about the weak economic recovery and gives little hope of an imminent turnaround.

By Staff writer / October 4, 2011

Federal Reserve Chairman Ben Bernanke listens to a question during testimony at a Joint Economic Committee hearing on the economic outlook, on Capitol Hill in Washington Tuesday.

Jonathan Ernst /REUTERS

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Washington

Despite significant improvement in US financial markets since 2008, the economic recovery is “close to faltering,” Federal Reserve Chairman Ben Bernanke told a joint congressional panel on the US economic outlook on Tuesday.

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Ben Bernanke, chairman of the US Federal Reserve, warned the US Congress Tuesday that the American economic recovery is in jeopardy, and the central bank is ready to do more to support growth.

After dramatic interventions to resolve the financial crisis that broke out in the fall of 2008, there are no silver bullets for a swifter recovery, beyond a willingness to “take further action as appropriate,” the Federal Reserve chief said.

New economic data signal a recovery even weaker than previous estimates. In the first half of the year, the nation’s gross domestic product increased at an average rate of less than 1 percent. Over the summer, private sector jobs increased by only about 100,000 jobs per month, and public sector jobs continued to drop. Moreover, new home construction – the engine of previous recoveries – was sputtering at only about a third of its average in recent decades.

Then, there’s debt crisis in Greece and other eurozone countries that’s a “significant source of stress in global financial markets,” also rattling consumer and business confidence, he said.

Closer to home, Mr. Bernanke criticized Congress for contributing to an uncertain business climate with last summer’s debt-limit debate, which raised the prospect of a first-ever US default on its national debt.

“Unfortunately the brinksmanship of the summer and at least perception in the minds of some investors that the United States might actively consider defaulting on its debt, and moreover, the possibility that this might be recurring periodically, I think was a negative for the financial markets,” he said.

“It was the reason that the downgrade occurred, that the S&P cited the political process more than the amount of debt outstanding. It's no way to run a railroad, if I may say so,” he added.

Congress’s Joint Select Committee on Deficit Reduction, created as part of the debt-ceiling deal, has been tasked with cutting $1.5 trillion in deficits over the next 10 years. It’s a substantial step, Bernanke said. “However, more will be needed to achieve fiscal sustainability.”

“Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the US economy,” he added. “Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector.”

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