WASHINGTON – The United States can’t fully recover from the worst recession in decades until hiring improves, Federal Reserve Chairman Ben Bernanke said Thursday.
The economy is strengthening, and will likely grow at a faster pace this year as more confident consumers and companies spend more, Bernanke said in a speech to the National Press Club. But he warned that growth won’t be strong enough to quickly drive down high unemployment.
“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” he said.
His remarks suggest the Fed will stick with its program to prime the economy by purchasing $600 billion of Treasury bonds by the end of June.
The Fed chief also issued a stern warning to Congress and the White House to come up with a plan to reduce the government’s bloated budget deficits. And he told Congress not to play political games with the Treasury Department’s request to boost the government’s borrowing authority beyond the current $14.3 trillion statutory cap.
On the hiring front, Bernanke said it will take “several years” for unemployment to return to more normal levels. Last month, the Fed chief was more specific, saying it would take four or five years for the unemployment rate to drop to a historically normal level of around 5.5 percent or 6 percent.
The Fed chief spoke one day before the government releases its employment snapshot for January. Economists believe the unemployment rate ticked up to 9.5 percent last month, from 9.4 percent in December, and employers added a net total of around 146,000 jobs. Job-creation would need to be twice as fast each month to make a noticeable dent in unemployment.
Still, Bernanke said Thursday’s sharp decline in requests for unemployment benefits is encouraging. And he was hopeful that companies will become more willing to hire this year, saying he expected stronger jobs reports “pretty soon.”
Discussing the nation’s fiscal situation, Bernanke warned that the economy could be hurt if Congress and the White House fail to craft a long-term plan to reduce the government’s $1 trillion-plus budget deficits.
Persistent budget deficits will prompt investors to demand higher returns on government loans, causing interest rates to soar. Higher borrowing costs would crimp spending by consumers and businesses, slowing economic activity.
“If government debt and deficits were actually to grow at the pace envisioned, the economic and financial effect would be severe,” Bernanke said.
The budget deficit has averaged approximately 9 percent of the nation’s $14 trillion economy over the past two years. That’s up from an average of 2 percent during the three years before the recession, Bernanke said.