WASHINGTON – The United States can't fully recover from the worst recession in decades until hiring improves, Federal Reserve Chairman Ben Bernanke said Thursday.
The economy is strengthening, and will likely grow at a faster pace this year as more confident consumers and companies spend more, Bernanke said in a speech to the National Press Club. But he warned that growth won't be strong enough to quickly drive down high unemployment.
"Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," he said.
His remarks suggest the Fed will stick with its program to prime the economy by purchasing $600 billion of Treasury bonds by the end of June.
The Fed chief also issued a stern warning to Congress and the White House to come up with a plan to reduce the government's bloated budget deficits. And he told Congress not to play political games with the Treasury Department's request to boost the government's borrowing authority beyond the current $14.3 trillion statutory cap.
On the hiring front, Bernanke said it will take "several years" for unemployment to return to more normal levels. Last month, the Fed chief was more specific, saying it would take four or five years for the unemployment rate to drop to a historically normal level of around 5.5 percent or 6 percent.
The Fed chief spoke one day before the government releases its employment snapshot for January. Economists believe the unemployment rate ticked up to 9.5 percent last month, from 9.4 percent in December, and employers added a net total of around 146,000 jobs. Job-creation would need to be twice as fast each month to make a noticeable dent in unemployment.
Still, Bernanke said Thursday's sharp decline in requests for unemployment benefits is encouraging. And he was hopeful that companies will become more willing to hire this year, saying he expected stronger jobs reports "pretty soon."
Discussing the nation's fiscal situation, Bernanke warned that the economy could be hurt if Congress and the White House fail to craft a long-term plan to reduce the government's $1 trillion-plus budget deficits.
Persistent budget deficits will prompt investors to demand more returns on government loans, causing interest rates to soar. Higher borrowing costs would crimp spending by consumers and businesses, slowing economic activity.
"If government debt and deficits were actually to grow at the pace envisioned, the economic and financial effect would be severe," Bernanke said.
The budget deficit has averaged approximately 9 percent of the nation's $14 trillion economy over the past two years. That's up from an average of 2 percent during the three years before the recession, Bernanke said.
The Treasury Department has asked Congress to let it borrow more so that it can continue to pay its bills. In the unlikely event that Congress was to deny the request, the U.S. government would be at risk of defaulting on its debt. Bernanke said the implications would be catastrophic. He urged Congress not to use the debt limit issue as a "bargaining chip" in broader discussions about how to reduce the government's debt and deficits.
On the economy, Bernanke said he expected inflation to be quite low despite a recent increase in commodities prices, such as oil and gasoline. The Fed has said that it believes competitive pressures will prevent companies from passing along all of these higher costs by significantly boosting prices to consumers.
Bernanke wouldn't talk about what economic impact, if any, political upheaval in Egypt would have on the U.S. and the global economy. He attributed the rise in global food and oil prices to strong demand from fast-growing countries like China — not on the Fed's policies to stimulate growth in the United States.
Last week, Bernanke and his colleagues said the $600 billion bond-purchase program is needed to help the economy grow more strongly and ease unemployment. Low inflation gives the Fed leeway to stay the course.
A Fed committee headed by vice chair Janet Yellen will soon have recommendations on ways to improve the Fed's communications with the public and investors, Bernanke said.
One of the options is for Bernanke to have periodic press conferences. Bernanke said the Fed wants to be more open and do a better job of explaining its policies. At the same time, the Fed doesn't want to unnecessarily rattle financial markets by saying too much or not communicating clearly.