MercoPress. South Atlantic News Agency

Outlook of US economy remains “unusually uncertain” says Bernanke

Fed chairman testifying before the Senate

US Federal Reserve chairman Ben Bernanke has warned that the outlook for the US economy remains “unusually uncertain”. In testimony before the Senate Banking Committee, Mr Bernanke said record low interest rates would still be needed to support economic recovery.

The Fed was also prepared to step in with “further policy actions” to boost the economy if needed, he added. But he downplayed fears that the US could re-enter recession.

Some economists have questioned whether a withdrawal of economic stimulus measures could harm the US economy's recovery.

“Even as the Federal Reserve continues prudent planning for the ultimate withdrawal of monetary policy accommodation, we also recognise that the economic outlook remains unusually uncertain,” Mr Bernanke said, in prepared testimony.

“[But] rising demand from households and businesses should help sustain growth,” he added.

The head of the US central bank reiterated an earlier pledge to keep interest rates at their current historical lows for “an extended period”.

Interest rates have been held at between 0% and 0.25% - a move designed to boost lending and spending - since the depths of the financial crisis in 2008.

Inflation was less of a concern, Mr Bernanke also told the committee, with the Fed expecting inflation to remain “subdued over the next several years”.

The US economy grew at an annualised rate of 2.7% in the first quarter of the year, having emerged from recession last year. But high unemployment and a slowdown in manufacturing have raised concerns that the recovery is faltering.

Mr Bernanke said that although the Fed would “review its options” if the recovery weakened further, no specific measures were currently being considered for the short-term.

“In short, it looks likes our economy is in need of additional help,” remarked the head of the committee, Senator Chris Dodd. Investors on Wall Street reacted negatively to the comments, with the Dow Jones Industrial Average dropping 1.3%.