latimes.com
Bernanke says economic outlook is 'unusually uncertain'
In congressional testimony, the Fed chairman predicts that unemployment will remain stubbornly high for years. His comments send stocks down sharply.
By Walter Hamilton, Los Angeles Times
1:28 PM PDT, July 21, 2010
Federal Reserve Chairman Ben S. Bernanke painted a generally downbeat picture of the U.S. economy Wednesday, saying the overall outlook is "unusually uncertain" and predicting that unemployment will remain stubbornly high for several years.
Slowly improving consumer and business spending will help the economy grow 3% to 3.5% this year and 3.5% to 4.5% in each of the next two years, Bernanke told members of the Senate Banking Committee in his semiannual testimony to Congress.
But it will take "a significant amount of time" to reclaim the 8.5 million jobs lost during the recession, he said. The national unemployment rate, currently 9.5%, is expected to decline only to 7% to 7.5% by the end of 2012, Bernanke said.
"Nearly half of the unemployed have been out of work for longer than six months," Bernanke said. "Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers' employment and earnings prospects."
Bernanke's statements sent the markets down sharply. The Dow Jones industrial average of 30 blue-chip stocks had been flat but fell more than 125 points midway through his testimony.
The tone of Bernanke's comments matches that of many private forecasters, who have grown less sanguine with the economic outlook in the last few months. Though most experts believe the economic recovery will continue, the consensus is that it will be slower and more grinding than once envisioned.
Other drags on the economy, Bernanke said, include the "weak" housing market and a "somewhat weaker outlook" for financial conditions, including the high debt levels and troubled economic situation in Greece and several other European countries.
Though the financial services industry has recovered significantly from the financial crisis, "many banks continue to have a large volume of troubled loans on their books, and bank lending standards remain tight," he said.
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