Bernanke sees sustained US growth despite 'headwinds'
Posted: 17 November 2009 0407 hrs

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WASHINGTON - Federal Reserve chairman Ben Bernanke said Monday he expects the US economy to sustain its growth into 2010 despite "important headwinds" including tight credit and weak employment.

Bernanke said he sees the economy maintaining growth -- after expanding in the third quarter following four quarters of declines -- despite fears of a so-called double-dip recession.

"The stabilization of financial markets and the gradual restoration of confidence are in turn helping to provide a necessary foundation for economic recovery," he said in a speech to the New York Economic Club.

"We are seeing early evidence of that recovery."

Bernanke also said the Fed is "attentive" to the slide in the US dollar and is working to keep the greenback strong as part of its effort to maintain economic stability.

"We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," he told the Economic Club of New York.

"Our commitment to our dual objectives, together with the underlying strengths of the US economy, will help ensure that the dollar is strong and a source of global financial stability."

Bernanke's comments come with the greenback under heavy pressure in foreign exchange markets, raising complaints from around the globe about the weak US currency that could have significant impacts on various economies.

Because of the Fed's near-zero interest rate policy, the dollar is being used by investors for so-called carry trades in which they borrow greenbacks at low rates to invest in higher-yielding assets such as commodities and bonds of other governments. This increases pressure on the dollar.

Bernanke gave no fresh hint on when the Fed would begin lifting rates, but repeated the comments made by the Federal Open Market Committee that conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

He said the central bank has "a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability."

After four negative quarters, the world's largest economy grew at a seasonally adjusted 3.5 percent annual rate in the July-September period.

Bernanke acknowledged that some of the growth came from temporary government support but nonetheless said he expects the expansion to continue, dismissing the notion of a double-dip recession.

"My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely," he said.

"However, some important headwinds -- in particular, constrained bank lending and a weak job market -- likely will prevent the expansion from being as robust as we would hope."

Bernanke said that despite a massive liquidity push by the Fed, "access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses."

But he said the Fed continues to work to stimulate lending: "Normalizing the flow of bank credit to good borrowers will continue to be a top priority for policymakers."

He said the weak job market is an area "of great concern" with the unemployment rate having officially hit 10.2 percent in October. This will make it hard to generate income and spending to sustain a recovery, he noted.

"The best thing we can say about the labor market right now is that it may be getting worse more slowly," he said.

He said he sees employment slowly growing again but added that "a number of factors suggest that employment gains may be modest during the early stages of the expansion."

- AFP /ls