US recovery could take years, warns Bernanke

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The Independent Online

Ben Bernanke, the chairman of the US Federal Reserve, said he would not consider the US economic recovery to be fully established until unemployment began to fall sharply, and that could still take several years.

In remarks which signalled the central bank will maintain its accommodative monetary policy for the foreseeable future, Mr Bernanke acknowledged recent encouraging signs from the labour market but said employers remained reluctant to hire.

His comments came the day before the Labour Department was due to release employment data for January. Economists are expecting today's figures to show 150,000 new jobs were created last month, but that the US unemployment rate ticked up from 9.4 per cent in December to 9.5 per cent, as people returned to the workforce.

"Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," Mr Bernanke said in a speech to the National Press Club in Washington. "Although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain stubbornly below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate."

The Fed is midway through a $600bn programme of quantitative easing, buying US Government bonds in an attempt to hold down interest rates and stimulate activity in the world's largest economy. Official US interest rates have been held at zero since December 2008, forcing the central bank to adopt additional unconventional measures to affect market rates.

Mr Bernanke predicted stronger economic activity this year, and new data out yesterday supported an optimistic case. The Institute of Supply Management's non-manufacturing index showed US service sector industries expanding at the fastest pace since August 2005. The index is regarded as the best measure of the service sector.

There was also strong data from the manufacturing side of the economy, with the Commerce Department showing US factory orders rose unexpectedly in December.

Zach Pandl, US economist at Nomura, said: "I think both reports indicate that growth momentum in the US remains very strong."