Bernanke warns of slow progress ahead on jobs

Wed Feb 29, 2012 1:34pm EST
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By Mark Felsenthal and Pedro da Costa

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Wednesday offered a tempered view of the U.S. economy, pouring cold water on the notion that recent upbeat signs herald a stronger recovery.

Bernanke told Congress that unless growth accelerated, the unacceptably high U.S. unemployment rate would not keep dropping.

But he stopped short of signaling further Fed bond purchases, dashing the hopes of some traders in financial markets who were betting on more monetary stimulus.

"The job market is far from normal," Bernanke said. "Continued improvement ... is likely to require stronger growth in final demand and production."

The swift decline in the U.S. unemployment rate in recent months, to a three-year low of 8.3 percent in January from 9.1 percent in August, has surprised economists both within and outside the Fed given the economy's relatively soft performance.

"The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend," Bernanke told the U.S. House of Representatives Financial Services Committee.

While the tenor of Bernanke's remarks was dovish, the lack of a direct allusion to the possibility of a third round of so-called quantitative easing undercut prices for U.S. stocks and government bonds, and hit gold prices hard. Gold slumped more than 4 percent, the biggest one-day drop this year.

"Bernanke implied that the Fed was no closer to QE3 ... Investors were disappointed," said Cary Leahey of Decision Economics in New York.   Continued...

U.S. Federal Reserve Chairman Ben Bernanke testifies before a Senate Budget Committee hearing on the outlook for the U.S. Monetary and Fiscal Policy on Capitol Hill in Washington, February 7, 2012.   REUTERS/Jason Reed