U.S. central bank: Economy is losing momentum

13:22, June 23, 2011      

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Amid a cascading host of weak economic news, even U.S. Federal Reserve Chairman Ben Bernanke conceded Wednesday in Washington that the central bank has little idea on what has went wrong with the suddenly stumped economic recovery.

Meeting a media corps at the Reserve, Bernanke said that central bankers including himself were caught off guard by latest signs of deterioration in U.S. economy, and he hinted that the woes could be long-lasting and linger to 2012. That was a reversal from earlier belief that the slowdown in the first quarter this year was only "transitory".

"We don’t have a precise read on why this slower pace of growth is persisting," Bernanke said. He suggested that problems in the financial sector and the housing market, and with consumers trying to pay down their debt, had been underestimated. "Some of these head winds may be stronger or more persistent than we have thought."

The Federal Reserve cut its forecast for U.S. economic growth this year to a range of 2.7-2.9 percent from an April forecast of 3.1- 3.3 percent. It also cut its forecast for next year to a range of 3.3 -3.7 percent from an earlier 3.5 -4.2 percent. It also said unemployment would stay higher for a prolonged period.

Despite the disappointing performance of the economy, Bernanke said that the Federal Reserve will stick to its plan of winding down its controversial "quantitative easing" and ending buying vast sums of Treasury bonds at the end of June.

The bond-buying program has been controversial. Supporters say the bond purchases have kept interest rates low and encouraged spending. Low long-term rates make it easier to buy homes. The average rate on a 30-year mortgage has stayed below 5 percent this year. But low rates haven't helped home sales much. They fell in May to the lowest level since November.

Though Bernanke did not say explicitly on whether the central bank will come out more bond-buying scheme to pump more money into the economy, his talk gave hints that he support fiscal stimulus measures to back up a flagging recovery from the 2007-2009 serious recession.

"Our budgetary problems are very long-run in nature," said the Fed chairman. "That doesn't mean we should wait to act. The sooner we can act, the better for us. But the most efficient and effective way to address our fiscal problems . . . is to take a long-run perspective, not to focus the cuts heavily on the near term."

In a policy statement issued at the end of a two-day meeting, the Federal Reserve blamed the worsening economic outlook in part on higher energy prices and the earthquake and tsunami in Japan, which slowed production of cars and other products.

By People's Daily Online
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