Focus On The Fed

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Federal Reserve Chairman Sees Modest Growth

By BINYAMIN APPELBAUM


WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, said on Wednesday that the central bank retained its modest expectations for the American economy this year, despite some recent signs of stronger growth.

Mr. Bernanke said the recent rise in oil prices also had not shifted the Fed’s view that the economy would expand 2.2 to 2.7 percent this year, about the same pace as during the second half of last year.

He acknowledged that rising oil prices were “likely to push up inflation temporarily while reducing consumers’ purchasing power.” But the Fed expects the overall pace of increases in prices and wages to remain “subdued,” Mr. Bernanke said in testimony before the House Committee on Financial Services.

Some economists see evidence that the pace of growth is increasing. The Bureau of Economic Analysis, an arm of the federal government, said on Wednesday that the economy grew at an annual rate of 3 percent in the last three months of 2011, somewhat higher than its initial estimate of 2.8 percent. The unemployment rate has declined to 8.3 percent in January from 9.1 percent last July.

But the Fed has remained cautious, and Mr. Bernanke repeated a familiar list of reasons for that stance, including the depressed housing market and turbulence in Europe. The Fed also has overestimated the pace of recovery several times in recent years.

“The recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards,” Mr. Bernanke said. He noted that the Fed did not expect “further substantial declines” in the unemployment rate this year.

As a result, he said the Fed remained committed to continuing its economic stimulus efforts, keeping short-term interest rates near zero and maintaining a large portfolio of Treasuries and mortgage bonds to further reduce long-term rates, holding down borrowing costs for businesses and consumers.

Mr. Bernanke gave no indication that the Fed was considering new efforts, like increasing its holdings of mortgage-backed securities to bolster the housing market. Indeed, his remarks suggested that the Fed’s attention was shifting to the possibility that the recovery is outpacing its expectations.

Ian Shepherdson, chief United States economist at High Frequency Economics, a forecasting firm in Valhalla, N.Y., said in a note to clients that Mr. Bernanke was more upbeat than he had expected.

“Mr. Bernanke did not make a clean break from his previous, glum view of the economy, but his position has shifted a bit,” he wrote. “This sounds like the start of the beginning of a process.”

Mr. Bernanke appears twice each year before the House committee and its counterpart, the Senate Banking Committee, for a formal review of the Fed’s management of the nation’s monetary policy. The Senate hearing is planned for Thursday.

Wednesday’s House hearing unfurled along familiar lines, with Democrats applauding the central bank’s efforts to spur the economy, while Republicans expressed concern that the Fed’s actions would send inflation soaring out of control.

“I’d like to praise Chairman Bernanke for doing his job and really not bowing to the political pressure,” said Representative Melvin Watt, a North Carolina Democrat. “I just think he has done a magnificent job and the Fed has done a magnificent job of navigating us through some very, very difficult times.”

The sharpest counterpoint came from Representative Ron Paul, Republican of Texas and a candidate for president, who flourished an actual, shiny ounce of silver as he lectured Mr. Bernanke on the declining value of the dollar.

Mr. Paul, has long argued that people should be able to exchange dollars for precious metals.

“You love paper money,” he said. “I think money should be honest.”

Mr. Bernanke was deadpan in his response.

“First of all,” he said, “good to see you again.”

Much of the hearing focused on fiscal rather than monetary policy. Mr. Bernanke has become an outspoken advocate for Congress to adopt a long-term plan for reducing the government’s annual deficits and growing debt. He warned Wednesday that the government faced a “fiscal cliff” at the end of the year, when a number of major policy changes are set to occur simultaneously, including the expiration of the Bush tax cuts and across-the-board reductions in government spending passed last year as part of a deal to raise the debt ceiling.

“I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date,” Mr. Bernanke said.

He declined several times to endorse the particular fiscal proposals of Democrats and Republicans on the committee.