Bernanke Takes A Bow, Credits Fed Support For Economic Recovery

(RTTNews) - Federal Reserve Chairman Ben Bernanke on Friday offered a vigorous defense of unprecedented measures taken under his watch to spur the U.S. economy after the worst recession in decades.

"Skeptics have pointed out that the pace of recovery has been disappointingly slow, with inflation-adjusted GDP growth averaging only slightly higher than a 2 percent annual rate over the past few years and inflation below the Committee's 2 percent longer-term target," Bernanke said at the American Economic Association annual meeting in Philadelphia.

"However, the recovery has faced powerful headwinds, suggesting that economic growth might well have been considerably weaker, or even negative, without substantial monetary policy support. For the most part, research supports the conclusion that the combination of forward guidance and large-scale asset purchases has helped promote the recovery."

Bernanke will step down as Fed chair later this month, to be replaced be current Vice Chairman Janet Yellen.

Today's speech may have represented Bernanke's last public remarks on the economy before Yellen takes over.

In Bernanke's view, the Fed was correct to offer enhanced forward guidance regarding the likely path of the federal funds rate. Also, the highly controversial program of large-scale purchases of longer-term securities that bloated the Fed's balance sheet was necessary to get the economy moving again, he argued.

Last month, the Fed said it would reduce its monthly asset purchases by $10 billion to $75 billion.

Speaking to markets that may be concerned the Fed will quickly scale back support measures, Bernanke offered assurances that interest rates will remain exceedingly low for some time:

"The FOMC's decision to modestly reduce the pace of asset purchases at its December meeting did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed; rather, it reflected the progress we have made toward our goal of substantial improvement in the labor market outlook that we set out when we began the current purchase program in September 2012."

Rates will stay near zero well past the time when U.S. unemployment reaches the Fed's 6.5 percent target, especially if projected inflation continues to run below their 2 percent longer-run goal, Bernanke said.

While warning that their is still work to be done by central bankers, Bernanke took credit for the economy showing considerable progress since the recovery officially began four and a half years ago.

"The unemployment rate has fallen from 10 percent in the fall of 2009 to 7 percent recently. Industrial production and equipment investment have matched or exceeded pre-recession peaks. The banking system has been recapitalized, and the financial system is safer," Bernanke said, also noting that stocks are up 60 percent from the dark days of the crisis.

Looking ahead, the combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters, according to Bernanke.

Thanks in large part to the Fed's super-easy monetary policy, the U.S. economy should continue to outperform other advanced economies in 2014, he said.

Earlier in the day, Philadelphia Fed President Charles Plosser spooked markets by saying the central bank may have to be "aggressive" in raising interest rates.

Elsewhere, Richmond Fed Chief Jeffrey Lacker offered a relatively pessimistic outlook for the U.S. economy in 2014.

He said the U.S. is likely to expand at a 2% rate in 2014 instead of closer to 3% as more and more private-sector economists are suggesting.