Bernanke optimistic on long-term growth

Washington:  Federal Reserve Chairman Ben Bernanke said Thursday that he thinks the US economy will return to its long-term growth of around 3 per cent a year despite the weaknesses it still faces.

Bernanke made his observation in his fourth and final lecture to George Washington University students. The lectures this month have been intended to both demystify the Fed and defend the steps it took to confront the 2008 financial crisis and the Great Recession.

The Fed chairman showed the students a chart illustrating that annual US economic growth over the past century has been about 3 per cent. Since the recession ended in 2009, the economy has averaged about 2.5 per cent growth.

Some economists have raised the possibility that the economy's weakness since the financial crisis hit could persist for years. Bernanke said he was more optimistic.

"I think there's a reasonable chance, looking at the long-run history, that the US economy will return to healthy growth, somewhere in the 3 per cent range," Bernanke said. Bernanke didn't say when he thought the US economy would return to its normal growth rate. The government reported Thursday that the economy did grow at a 3 per cent rate in the final three months of 2011. But economists believe that growth slowed to around 2 per cent in the first three months of this year. In his final lecture, Bernanke explained how the Fed drove a key interest rate it controls to a record low near zero in December 2008 — and then took unconventional steps to try to help the economy recover from the financial crisis and recession.

Rates

Among the actions it took were two rounds of bond buying totalling more than $2 trillion (Dh7.3 trillion). The goal was to drive down long-term rates to encourage borrowing and spending.

Many investors hope the Fed will launch a third round of bond buying later this year. Bernanke offered no hints about the Fed's intentions. But he defended the bond purchases, which critics say have heightened the risk of high inflation later.

Bernanke noted that the Fed has the power to create money and can withdraw the money from the banking system once the economy no longer needs the support.