Bernanke cautious on economic recovery

Federal Reserve Chairman Ben S.
Bernanke forecasted a “moderate economic recovery” offering a
cautious tone that suggests he has not dramatically upgraded his expectations
for the economy based on a recent spate of positive economic data.

In recent weeks, there have been a
series of positive readings on the economy, including news that job growth was
its strongest in three years in March and a report Wednesday that March retail
sales rose a strong 1.6 per cent. But in describing his view of the economic
outlook to the Joint Economic Committee, Bernanke sounded the same restrained
tone in describing his expectations that he did in testimony back in the

“On balance, the incoming data
suggest that growth in private final demand will be sufficient to promote a
moderate economic recovery in coming quarters,” Bernanke said in prepared
testimony. He added later that, “if the pace of recovery is moderate, as I
expect, a significant amount of time will be required to restore the 8 1/2
million jobs that were lost during the past two years.”

Bernanke also spelled out some of
the remaining risks to growth.

“To be sure, significant
restraints on the pace of the recovery remain, including weakness in both
residential and non-residential construction and the poor fiscal condition of
many state and local governments.”

Real estate activity has been a
drag on growth for years now, but Bernanke had not previously emphasized the
role that state budget cuts could have on overall economic activity.

“Pressures on state and local
budgets, though tempered by ongoing federal support, have led to continuing
declines in employment and construction spending by state and local

Bernanke also
returned to a topic he discussed in a speech last week, the nation’s fiscal
imbalances, urging Congress and the administration to chart a path toward a
more sustainable budget picture in the medium to long term.