Bernanke Says US Recovery is “Fragile”

By: Mike Campbell
As he seeks re-election for another term as Federal Reserve Chairman, Ben Bernanke has been telling the Economic Club of Washington that the US recovery remains fragile. He pointed out that US employment levels are likely to remain at elevated levels for some time to come. Re-employment of workers laid off during a recession always lags behind recovery – this is likely to be even more pronounced if the recovery is less than robust. Similarly, he has repeated the Fed’s policy that interest rates must remain low “for an extended period of time”. This will do little to help the strength of the US Dollar in international trading. His comments have been attributed to the reversal of the recent rally (since 27 November) of the Dollar against the Euro.

Bernanke gave no hints as to when the stimulus package may start to be withdrawn. This will be a cardinal sign that US authorities believe that the worst of the economic crisis is over. US President Barack Obama has suggested that financial provisions made under the Troubled Asset Relief Progam (TARP) and not required, may be used to reduce the US deficit and to stimulate employment. Some $200bn less than projected was required to bail out the financial sector. The US deficit is a staggering $1.4tn and the current unemployment level is hovering around the 10% mark.

The Bank of Japan has announced that its latest stimulus package will cost $81bn. The latest round of support is designed to prevent the economy from sliding back into recession. Japan came out of a year long recession in Q2 this year and remained in growth in Q3. However, with a high Yen; high unemployment and price deflation, confidence is in short supply right now.