LITTLE ROCK — Federal Reserve Chairman Ben S. Bernanke said on Monday that he’s encouraged by the unemployment rate’s decline to 8.3 percent, but suggested continuation of the Fed’s policy of low interest rates will be needed to sustain progress.
Reducing the joblessness rate further will probably require a quicker expansion of business production and consumer demand, which “can be supported by continued accommodative policies,”he said.
The surge in hiring since December had led some economists to predict that the Fed might consider raising rates earlier than planned. But many took Bernanke’s cautious tone as a commitment to the late-2014 timetable.
And some viewed the speech as a signal that the Fed might take further steps, if the economy falters, to try to further drive down long term borrowing rates to increase lending. The major risk of the policy is that it could lead to higher prices or inflation by from the market.
The central bank will conclude by the end of June its current round of purchases of securities, such as bonds, to increase the money supply. Some Fed officials want to begin another round in the aftermath, while others oppose new actions. Bernanke and his principal adviser shave remained tight-lipped on the issue.
The Dow Jones industrial average climbed 160.90 points to 13,241.63, its third best showing this year. The Standard & Poor’s 500 index rose 19.40 points to 1,416.51, its highest close since May 2008.
The Nasdaq composite index, which is closing in on a 20-percent rally for the year, climbed 54.65 points to 3,122.57, its best finish since November 2000.
The Federal Open Market Committee on March 13 raised its assessment of the economy while repeating that interest rates are likely to stay low at least through late 2014.
Bernanke told the National Association for Business Economics conference in Arlington, Va., that “a wide range of indicators suggests that the job market has been improving, which is a welcome development indeed. Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks.”
Recent “better news” on the U.S. economy has also included a “slight bit of encouraging news here and there in the housing market” and strength in manufacturing, Bernanke said in response to audience questions.
Those improvements could contribute to higher consumer confidence and lead to a self-sustaining recovery, he said. “We haven’t seen that in a persuasive way yet,” Bernanke said.
The Fed chairman also said the slow growth in wages was consistent with his belief that weak demand was most responsible for high unemployment.
First-time claims for unemployment insurance decreased by 5,000 to 348,000 in the week that ended March 17, the fewest since February 2008. About 1.2 million jobs were created in the past six months, the most since the corresponding period ending in May 2006, Labor Department figures show. The unemployment rate held in February at a three-year-low of 8.3 percent.
“We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” Bernanke said, adding he was particularly concerned about the number people out of work for six months or longer.
Bernanke’s concern over unemployment has been echoed by other Fed officials. While economic reports have improved, it is “far too soon to conclude that we are out of the woods” and “nothing has been decided” on more bond purchases, New York Fed President William C. Dudley said March 19.
Bernanke, 58, a former economics professor at Princeton University, has drawn lessons from the Great Depression in taking unconventional actions following the 2008 financial crisis.
The Fed has held interest rates near zero since 2008 and purchased $2.3 trillion in bonds to spur growth after unemployment rose to as high as 10 percent in 2009.
The U.S. economy expanded at a 3-percent annual rate in the fourth quarter, the fastest pace in more than a year, as households spent more freely.
Growth will probably slow to 2 percent this quarter, according to the median of 72 economists’ forecasts in a Bloomberg News survey from March 9 to March 13.
Information for this article was provided by Steve Matthews and Jeff Kearns of Bloomberg News, Martin Crutsinger of The Associated Press and Binyamin Appelbaum of The New York Times.
Business, Pages 21 on 03/27/2012