Fed boss has bittersweet message on recovery, jobs

[April 20, 2010]  WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke goes to Capitol Hill on Wednesday with a bittersweet message: The economic recovery is taking hold but won't be strong enough to quickly drive down unemployment.

Bernanke's out-of-the box thinking during the 2008 financial crisis helped prevent the Great Recession from turning into the second Great Depression. Now, however, the Fed chief faces the delicate task of making sure the recovery lasts well after massive government stimulus fades later this year.

To foster the recovery, Bernanke and other Fed officials have repeatedly pledged to hold interest rates at record lows for an "extended period." The hope is that low rates will entice people and businesses to spend more, generating enough economic activity to help keep the recovery going.

But Bernanke is likely to warn again that the pace of the recovery will be sluggish because Americans still face formidable headwinds: high unemployment, stagnant wages, weak home values, rising foreclosures and hard-to-get credit.

The Fed chief will offer his latest assessment on the economy when he appears before Congress' Joint Economic Committee. He'll be under more pressure than usual. It's an election year for lawmakers, whose constituents -- including individuals and small businesses -- are anxious about their financial prospects.

The economy started growing again in the third quarter of last year, after a record four straight losing quarters. And, more recently, the economy started to finally create jobs -- 162,000 of them in March, the most in three years. Nonetheless, the unemployment rate has been stuck at 9.7 percent for three straight months -- close to its highest levels since the early 1980s.

Many private economists say it will take at least until the middle of this decade for the jobless rate to drop to a more normal 5.5 percent to 6 percent. Recoveries after financial crises tend to be more subdued as some credit problems linger.

With the worst over, though, the Fed has dismantled most of its special lending programs set up during the crisis. And, the Fed ended last month a $1.25 trillion mortgage-buying program that lowered mortgage rates and bolstered home sales.

At some point when the recovery is firmly entrenched, the Fed will need to start boosting rates to prevent any inflation problems.

The soonest the Federal Reserve will begin raising short-term interest rates is the fourth quarter, according to 34 of the 44 economists polled in a new AP Economy Survey that debuted on Monday.

[Associated Press; By JEANNINE AVERSA]

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