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Bernanke says US economy still weak

Fed chairman’s caution sends stocks higher

Alex Wong/Getty Images

Federal Reserve Board chairman Ben Bernanke spoke Monday during an economic policy conference of the National Association for Business Economics in Arlington, Va.

WASHINGTON - Fed chairman Ben Bernanke says that the US job market remains weak despite three months of strong hiring and that the Federal Reserve’s existing policies will help boost economic growth.

Bernanke’s comments Monday to a group of economists in Arlington, Va., drove stocks higher. Many took his cautious words about the economy to mean the Fed is likely to stick to its plan to hold short-term interest rates at record lows through 2014.

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Though the job gains have helped support consumer confidence and incomes, “we have not seen that in a persuasive way yet,’’ Bernanke said. The Fed needs to “remain cautious’’ in deciding what its next moves should be, he said.

Further job gains will probably require stronger consumer and business demand, Bernanke said in a speech to the National Association for Business Economics spring conference.

The association has 2,400 member economists who work for corporations, universities, the government, and trade associations. Bernanke was addressing the group for the first time since 2008.

After Bernanke spoke, the Dow Jones industrial average rose more than 130 points in afternoon trading. Broader indexes also gained.

The surge in hiring since December had led some economists to predict that the Fed might consider raising rates earlier than planned.

But many took Bernanke’s cautious tone as a firmer commitment to the late-2014 timetable.

And some viewed the speech as a signal that the Fed might take further steps, if the economy falters, to try to further drive down long-term borrowing rates. The goal would be to encourage more spending by consumers and businesses.

Robert Dye, chief economist at Dallas-based Comerica bank, said the Fed might extend a program of shuffling its investment portfolio to shift more of its holdings into long-term Treasurys. That could help lower long-term rates. Or the Fed could launch another round of bond-buying.

“The chairman is very much keeping additional monetary policy options on the table,’’ said Dye, who attended the conference.

Employers added an average of 245,000 jobs a month from December through February. The unemployment rate has fallen nearly a full percentage point since summer, to 8.3 percent.

Still, the economy grew at an annual pace of just 3 percent in the October-December quarter. Economists think growth has slowed in the January-March quarter to around a 2 percent annual rate.

Bernanke said the combination of modest economic growth and rapid declines in unemployment is something of a puzzle. Normally, it takes growth of roughly 4 percent annual growth to lower the rate by 1 percentage point over a year.

He offered some reasons for the unexpected decline in unemployment. Employers may be hiring rapidly because they cut too many jobs during the recession. He also said that government revisions may later show stronger economic growth over the past year.

But Bernanke cautioned that he does not expect the unemployment rate to keep falling at its current pace without much stronger growth. He also noted that the rate is still roughly 3 percentage points higher than its average over the 20 years preceding the recession.

“Despite the recent improvement, the job market remains far from normal,’’ Bernanke said.

“The number of people working and total hours worked are still significantly below pre-crisis peaks.’’

The Fed is concerned that the recovery could falter, as it did last year. Americans are not seeing big pay increases. Gas prices are high. And Europe’s debt crisis could weigh on the US economy.

As long as inflation remains tame, analysts think the Fed will probably hold interest rates down to give the economy more support.

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