Federal Reserve Chairman Ben Bernanke pointed to a gloomy outlook for the US economy Tuesday, warning further drops in unemployment would likely prove "frustratingly slow."
Dealing a body blow to Barack Obama and others praying for rapid economic improvement before November's presidential elections, Bernanke instead offered a bleak assessment of the outlook for jobs and growth.
After GDP rose at a modest rate of around two percent in the first quarter of this year, Bernanke said "available indicators point to a still-smaller gain in the second quarter."
"Given that growth is projected to be not much above the rate needed to absorb new entrants into the labor force, the reduction in the unemployment rate seems likely to be frustratingly slow," he warned.
With unemployment stuck above eight percent -- where it has been for more than three years -- Bernanke expressed disappointment but offered only the slightest indication that the Fed will act.
Bernanke pondered aloud a key question still plaguing the Fed: "Whether or not there is in fact a sustained recovery going on in the labor market or are we stuck in the mud?"
Since the 2008 economic crisis, the Fed has deployed an arsenal of measures to get the world's largest economy back on track, but has been left with just a few, unorthodox, weapons.
At its most recent meeting in June, the Federal Reserve's policy committee agreed to extend a bond-buying program to boost the recovery, while several participants pressed for new tools to be weighed.
Bernanke said the Fed was ready to do more, but stressed that each new action needed to be carefully weighed.
He also suggested that US debt and the eurozone crisis represented a double-barreled threat trained at the heart of the economy.
"The possibility that the situation in Europe will worsen further remains a significant risk to the outlook."
But he added, European nations have both the incentive and the means to tackle the crisis.
He again urged Congress to put in place a plan that would reduce US debt while keeping short-term stimulus in place.
Investors reacted negatively to Bernanke's gloomy tone and his reticence to promise any new action from the Fed.
"Even the doves seem to finally recognize that the economy's woes are not easily addressed by monetary stimulus."
The Dow Jones Industrial Average sank immediately after Bernanke spoke, but later edged back into positive territory.
With confidence in the recovery rapidly eroding, the Fed may now face a race against time.
"Households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low," Bernanke admitted.
That doubt is being felt in the housing market -- a key pillar of the economy -- which Bernanke said showed some positive signs.
"We have seem modest signs of improvement," he said. "Both new and existing home sales have been gradually trending upward since last summer."
But, he added, "would-be buyers are deterred by worries about their own finances."
Source: AFP Global Edition