US Federal Reserve Chairman Ben Bernanke said the headwinds that have held back the US economy may be abating, leaving the country poised for faster growth as his tenure comes to an end.
“The combination of financial healing, greater balance in the housing market, less fiscal restraint and, of course, continued monetary policy accommodation bodes well for US economic growth in coming quarters,” Bernanke said on Friday in remarks prepared for a speech in Philadelphia.
“Of course, if the experience of the past few years teaches anything, it is that we should be cautious in our forecasts,” he said.
Bernanke ended his remarks to reflect on his eight years as leader of the US central bank, steering the economy through the most severe economic and financial crisis since the 1930s. His tenure ends on Jan. 31.
Policymakers last month trimmed the Fed’s monthly bond buying to US$75 billion from US$85 billion, taking a first step toward unwinding unprecedented stimulus engineered by Bernanke to put millions of unemployed Americans back to work.
He said the decision to taper bond purchases “did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed.”
Bernanke cited payroll employment rising by 7.5 million since 2010 and the economy growing in 16 of the 17 quarters after the recession ended as evidence the Fed’s policies, which also included providing more information on the likely future path of interest rates, have succeeded.
“The economy has made considerable progress since the recovery officially began some four-and-a-half years ago,” the 60-year-old former Princeton University professor said to a standing-room-only audience at the annual meeting of the American Economic Association.
“He sounded cautiously optimistic on the economy, probably more optimistic than you’ve heard him sound for most of his eight years,” JPMorgan Chase & Co chief US economist Michael Feroli said. “Having his last speech in front of economists rather than in front of Congress is a way to go out on a high note.”
Bernanke in his remarks highlighted his efforts at averting a depression.
“When the economy was in free fall in late 2008 and early 2009, such improvement was far from certain, as indicated at the time by stock prices that were nearly 60 percent below current levels and very wide credit spreads,” Bernanke said.
The Fed’s bond buying helped reduce unemployment to a five-year low of 7 percent in November last year, while swelling the Fed’s balance sheet to US$4.02 trillion.
Policymakers, including Philadelphia Fed President Charles Plosser, have said the purchases raise the long-term risk of inflation and may create financial market distortions, such as asset-price bubbles.
Bernanke defended the programs in his remarks on Friday, saying that “for the most part” academic research supports the conclusion that bond purchases and clearer communication from the Fed have “helped promote the recovery.”
Under Bernanke, the Fed began publishing its economic forecasts more frequently, established explicit goals for inflation and unemployment, released projections of future interest rates and began holding quarterly press conferences.
Bernanke said the steps have made Fed policy effective and are important for “supporting the institution’s democratic legitimacy.”
At the same time, Bernanke has sought to prevent Congress from allowing audits of the central bank’s monetary-policy decisionmaking, saying that such audits could infringe the Fed’s independence.
Legislation that would open the Fed’s policy to scrutiny from lawmakers was proposed by former US representative Ron Paul and his son, US Senator Rand Paul, both Republicans. The proposal is known as “Audit the Fed.”
Fed Vice Chairman Janet Yellen has been nominated to succeed Bernanke. The Senate vote on her nomination is scheduled for tomorrow.