Federal Reserve Chairman Ben Bernanke on Wednesday offered a tempered view of the US 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 US unemployment rate would not keep dropping. But he stopped short of signalling 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 US 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 US 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 US stocks and government bonds, and hit gold prices hard. Gold slumped more than 4 percent, the biggest one-day drop this year. The US central bank cut overnight interest rates to near zero in 2008 and has bought $2.3 trillion in bonds in an effort to keep interest rates low and boost economic activity. After a policy meeting last month, the Fed said benchmark rates would stay exceptionally low through late 2014. Bernanke made clear on Wednesday that the pledge referred specifically to the current zero to 0.25 percent range for overnight rates.