US Federal Reserve chairman Ben Bernanke said today the shell-shocked US economy has improved, but cautioned that the recovery remains fragile and the jobless rate may remain elevated for some time.
"We still have some ways to go before we can be assured that the recovery will be self-sustaining," he told the Economic Club of Washington. "Also at issue is whether the recovery will create the large number of jobs that will be needed to materially bring down the unemployment rate."
The US labor market last month turned in its best performance since the economy fell into recession two years ago as the unemployment rate receded from a 26.5 year high and job losses slowed sharply, a government report showed on Friday.
Some analysts wondered whether the jobs data may sway the central bank, which cut rates to near zero a year ago and has pledged to hold them there for an "extended period," to move more quickly to withdraw its stimulus than had been expected.
However, Mr Bernanke made clear Fed officials, who meet next week to debate policy, were in no hurry.
"Right now we are still looking at the extended period, given that conditions remain -- low rates of utilisation, subdued inflation trends, and stable long term inflation expectations," he said in response to a question after his speech. "That remains where we are."
"Although we will continue to monitor inflation closely, on net it appears likely to remain subdued for some time," he said. "Indeed, inflation could move lower from here."
Mr Bernanke said tight credit and the weak labor market would be "formidable headwinds" that would hold back growth, although he said the central bank would take into account at its meeting on December 15th and 16th recent improvements in the economy.
Financial markets will parse the Fed's policy announcement next week closely for any signs it is inching toward raising borrowing costs or withdrawing the flood of money it pumped into financial markets to combat the worst banking crisis since the Great Depression.
Most analysts do not a expect a move to raise rates until well into next year at the earliest.
While underscoring the recovery's current fragility, Mr Bernanke took pains to argue that worries the Fed's easy money policies are setting the stage for runaway inflation later are unfounded.
"Will the Federal Reserve's actions to combat the crisis lead to higher inflation down the road?" he asked. "The answer is no. The Federal Reserve is committed to keeping inflation low and will be able to do so."
Reuters