US mone­tary pol­icy con­tain int’l im­pli­ca­tions

The Pak Banker - - Front Page -


Mr Ben S Ber­nanke, Chair­man of the Board of Gov­er­nors of the Fed­eral Re­serve Sys­tem ad­dress­ing at a high-level sem­i­nar “Chal­lenges of the global fi­nan­cial sys­tem: risks and gov­er­nance un­der evolv­ing glob­al­iza­tion”, spon­sored by the Bank of Ja­pan and the In­ter­na­tional Mone­tary Fund said it is a plea­sure to be here. This morn­ing I will first briefly re­view the U.S. and global eco­nomic out­look.

I will then dis­cuss the ba­sic ra­tio­nale un­der­ly­ing the Fed­eral Re­serve’s re­cent pol­icy de­ci­sions and place these ac­tions in an in­ter­na­tional con­text.

The U.S. econ­omy has faced sig­nif­i­cant head­winds, and, al­though the econ­omy has been ex­pand­ing since mid-2009, the pace of our re­cov­ery has been frus­trat­ingly slow. The head­winds in­clude the ef­fects of delever­ag­ing by house­holds, the still-weak U.S. hous­ing mar­ket, tight credit con­di­tions in some sec­tors, spillovers from the sit­u­a­tion in Europe, fis­cal con­trac­tion at all lev­els of gov­ern­ment, and con­cerns about the medium-term U.S. fis­cal out­look. In this en­vi­ron­ment, house­holds and busi­nesses have been quite cau­tious in in­creas­ing spend­ing. Ac­cord­ingly, the pace of eco­nomic growth has been in­suf­fi­cient to sup­port sig­nif­i­cant im­prove­ment in the job mar­ket; in­deed, the un­em­ploy­ment rate, at 7.8 per­cent, is well above what we judge to be its long-run nor­mal level. With large and per­sis­tent mar­gins of re­source slack, U.S. in­fla­tion has gen­er­ally been sub­dued de­spite pe­ri­odic fluc­tu­a­tions.

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