By Alyce Andres-Frantz
INDIANAPOLIS (MNI) - Federal Reserve Chairman Ben Bernanke Monday said slow growth and output in the United States has made it difficult to make progress on employment.
"The problem is really not with the level of unemployment, but rather growth not fast enough," Bernanke during a question and answer session following a speech in Indianapolis.
He gave a keynote address titled 'Five Questions about the Federal Reserve and Monetary Policy' to approximately 2,000 attendees hosted by the Economics Club of Indiana.
"We are just not seeing normal strength that would be seen at this point in the business cycle," Bernanke said of the level of employment.
Bernanke said he expects the economy to continue to grow, albeit at a rate of 1.5% to 2%.
"That is not enough to lower employment and it does not do anything to eat into backlog of employment," Bernanke told the audience.
While not concerned about recession, Bernanke said "growth is too low to put people back to work," and noted with concern the risk in creating a "permanent group of people that are not fulfilling potential in labor markets."
Bernanke said the lack of strength the U.S. labor markets is multifaceted.
In addition to low U.S. growth and output, Bernanke noted that downsizing and spending cuts associated with state and local governments have contributed to the inability of the labor markets to recover.
Fiscal issues in the U.S. have been part of the reason for slow growth he added.
Sluggish housing is also a contributor, Bernanke said.
While the housing market currently "is improving," the double whammy of the housing collapse and the financial crisis created major problems with labor market.
Furthermore, the EU crisis is contributing to the lack of hiring in the U.S., Bernanke told the audience.
Bernanke said the Fed is "watching situation in Europe," noting the complexity of the crisis given the need for consensus among the 17 eurozone members.
He noted that so far Europe has been able to avoid "a major blow-up," and said he is confident that they will continue to do so. If problems in Europe were to increase, however, the effects would certainly be felt here, Bernanke warned.
Bernanke said "the ECB must keep stability in the markets," and said while its current actions will "provide time," it is "important for countries within EU to provide structural changes."
On monetary policy and its impact on the U.S. currency, Bernanke said "I do not see any inconsistencies with Fed policy and a strong dollar."
"The biggest factor effecting the dollar is fear," Bernanke said adding that the level of the U.S. dollar "is about where it was before crisis."
Furthermore, Bernanke said "the markets expect inflation to stay around 2% going forward," which is reflective of a high amount of confidence in the Fed. Moreover, low rates for borrowing does not suggest a situation of high inflation."
Bernanke noted several times during the question and answer session that the Fed was "aggressive" at the very early stages of the financial crisis, which prevented a collapse of banking system.
Bernanke said there were lessons learned from Japan in that early and aggressive monetary policy actions are best.
--email: aandres@mni-news.com
**MNI Chicago Bureau: (708) 784-1849 **
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