WASHINGTON — The unemployment rate in the United States is likely to remain well above 7 percent through the end of 2012 and the duration of President Obama’s current term, according to the Federal Reserve.
Ben S. Bernanke, the Fed chairman, told Congress on Wednesday that it would take “a significant amount of time” to restore the 8.5 million jobs lost in the United States in 2008 and 2009, and warned that “the economic outlook remains unusually uncertain.” He also warned that financial conditions, particularly the European sovereign debt crisis, had “become less supportive of economic growth in recent months.”
In presenting the Fed’s semiannual monetary policy report to Congress, Mr. Bernanke struck a more cautious tone than he did when he last submitted the report, in February.
In written testimony to be delivered to the Senate Banking Committee, Mr. Bernanke said that the economic expansion that began in mid-2009 was “proceeding at a moderate pace,” though with substantial help from “stimulative monetary and fiscal policies,” in the form of easy credit from the Fed and substantial federal spending.
He projected that rising demand from households and businesses should help sustain growth, although fiscal measures by the government and inventory restocking by businesses would account for less stimulus than they had in recent months. And he warned that the housing market “remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.”
Mr. Bernanke described the slow recovery of the job market as “an important drag on household spending.” Private payrolls grew by about 100,000 jobs a month in the first half of the year — a pace that Mr. Bernanke called “insufficient to reduce the unemployment rate materially.” And nearly half of the unemployed have been out of work for more than six months, with serious consequences for their long-term earnings and employment prospects.
Inflation has trended downward in the last two years, Mr. Bernanke said. That development has caused some Fed officials to worry that the economy could be threatened by the prospect of deflation, a fear that Mr. Bernanke did not explicitly address in his written remarks.
At its latest meeting, in June, the Federal Open Market Committee, the Fed’s top policy-making arm, slightly lowered its growth forecast for the rest of this year, to a range of 3 to 3.5 percent. It expects growth of 3.5 to 4.5 percent in 2011 and 2012, and the unemployment rate to drop to 7 to 7.5 percent by the end of 2012.
“Most participants viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside,” Mr. Bernanke said. “Most participants projected that inflation will average only about 1 percent in 2010 and that it will remain low during 2011 and 2012, with the risks to the inflation outlook roughly balanced.”
Mr. Bernanke’s testimony came hours after President Obama signed into law a far-reaching overhaul of the financial regulatory architecture.
The Fed chief said that “much work remains to be done” to install the legislation through regulations, but added: “I believe the legislation, together with stronger regulatory standards for bank capital and liquidity now being developed, will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years.”
Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the Banking Committee, said in a prepared statement that “it looks like our economy is in need of additional help.” He added that he intended to ask Mr. Bernanke “whether the Fed can do more to help expand output and employment.”
A different view was offered by Senator Richard C. Shelby of Alabama, the top Republican on the committee.
“There are questions about whether the Fed has changed its focus from executing an exit strategy to lowering interest rates on reserves and possibly further ballooning its balance sheet with more asset purchases,” Mr. Shelby said. “This is especially concerning because the purchase of even more long-term assets may channel credit to favored segments of the markets at the expense of others.”
