Bernanke Sees ‘Moderate’ Growth Amid ‘Restraints’ (zt)

Bernanke Sees ‘Moderate’ Growth Amid ‘Restraints’

April 14 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. expansion will remain moderate as the economy contends with weak construction spending and high unemployment.

“On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,” Bernanke said in testimony to Congress today. “Significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments.”

Bernanke, in response to a question, said the Federal Open Market Committee has “stated clearly” its pledge to keep the main interest rate low for an “extended period” contingent on conditions including high unemployment and low inflation. U.S. central bankers are debating how and when to pull back on record monetary stimulus as the economy recovers from the worst slump since the Great Depression.

The 56-year-old former Princeton University economist said “further economic expansion will depend on continued growth in private final demand,” now that inventories are better aligned with sales and as fiscal stimulus is set to taper off.

“Consumer spending should be aided by a gradual pickup in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability,” the Fed chairman said in prepared testimony to the Joint Economic Committee of Congress. Even so, “a significant amount of time will be required to restore the 8-1/2 million jobs that were lost during the past two years.”

Main Rate

Policy makers have held the main lending rate at zero to 0.25 percent since December 2008. Fed officials next meet April 27-28.

“Everything is lined up for there to be no change in the statement language,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. LLC in New York. “With the Fed set up for a weaker recovery, the FOMC will have to be on guard for a stronger recovery than they expect.”

The economy is in its fourth consecutive quarter of expansion, according to economists surveyed by Bloomberg News. Fed officials in January forecast growth of 2.8 percent to 3.5 percent in 2010, about in line with the 3 percent consensus among economists surveyed by Blue Chip Economic Indicators.

Sales at U.S. retailers climbed in March more than anticipated, signaling consumers will play a bigger role in a broadening economic recovery. Purchases increased 1.6 percent last month, the most in four months, a Commerce Department report showed today.

Corporate Earnings

Stocks rose on the retail sales figures and better-than- forecast corporate earnings. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,203.13 at 10:54 a.m. in New York.

Manufacturing grew at the fastest pace in more than five years in March, and service industries expanded at the fastest pace since May 2006, according to indexes tracked by the Institute of Supply Management.

Employers increased payrolls by 162,000 workers last month, the third gain in the last five months and the biggest since March 2007, signaling companies are becoming more confident the economy is healing, Labor Department figures showed April 2. The jobless rate was 9.7 percent in March for a third month.

JPMorgan Chase & Co., the second-biggest U.S. bank by assets, beat analysts’ estimates as first-quarter earnings rose 55 percent on record fixed-income trading revenue and a reduction in provisions for credit losses. Net income climbed to $3.33 billion from $2.14 billion in the same period a year earlier, the New York-based bank said today in a statement.

Bank Credit

The Fed chairman noted that bank credit to households and businesses is still falling. “The decline in large part reflects sluggish loan demand and the fact that many potential borrowers no longer qualify for credit, both results of a weak economy,” Bernanke said.

The consumer price index slowed to a 1.1 percent annual rate in March versus 1.3 percent in February, Labor Department figures showed today. Other price indexes are also decelerating. The personal consumption expenditures price index, minus food and energy, slowed to a 1.3 percent annual rate in February from a 1.5 percent rate the prior month.

Wal-Mart Stores Inc., the world’s largest retailer, has reduced prices on more than 10,000 items after sales at U.S. stores dropped last quarter. The company plans to cut more prices in the coming weeks and months, Linda Blakley, a company spokeswoman, said April 9.

Consumer Prices ‘Subdued’

The Fed chairman noted the “subdued” rate of increase in consumer prices and said “moderation in inflation has been broadly based.”

Bernanke reiterated his call for lawmakers to set a path of reducing the record federal budget deficit.

“A credible plan for fiscal sustainability could yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence,” he said. “Addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult.”

The Obama administration estimates budget deficits will total $5.1 trillion over five years and hit a record $1.6 trillion in the year ending Sept. 30. The $1.4 trillion deficit in 2009 was equal to 9.9 percent of gross domestic product, the largest share since the end of the World War II.

Households are borrowing less and paying down debt even as the government borrows more. Consumer credit in February fell $11.5 billion, the 12th drop in 13 months.