Bernanke’s Speech on Economic Challenges

In a speech to the Dallas Regional Chamber of Commerce on Wednesday, Federal Reserve Chairman Ben Bernanke said that while the U.S. economy is operating well below its potential, it is stabilizing.

“If economic conditions improve, as I expect, we should see increased optimism among consumers and greater willingness on the part of banks to lend, which in turn should aid the recovery,” Bernanke said.

The Fed chairman, whose remarks are closely followed around the globe, also said he sees signs that economic growth following the nation’s worst financial crisis in several decades will be “sufficient to slowly reduce the unemployment rate over the coming year.” He noted however, that employment and housing remains a headwind.

“The unemployment rate has edged off its recent peak, but at 9.7 percent, it is still close to its highest level since the early 1980s. Although layoffs have eased in recent months, hiring remains very weak”, he said. “More than 40 percent of the unemployed have been out of work six months or longer, nearly double the share of a year ago. I am particularly concerned about that statistic, because long spells of unemployment erode skills and lower the longer-term income and employment prospects of these workers”.

In the short-term, Bernanke said, he also sees weakness in the housing market and commercial real estate.

“Notwithstanding the progress that I’ve noted, critical challenges–both near term and longer term–remain. We have yet to see evidence of a sustained recovery in the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures. The commercial real estate sector remains troubled, which is a concern for communities and for banks holding commercial real estate loans.”

According to Mr. Bernanke, “for the near term, inflation appears to be well controlled.”

See the full text of Federal Reserve Chairman Ben Bernanke’s speech here »

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