Thursday, June 23, 2011
Associated Press
WASHINGTON
The economy’s continuing struggles aren’t just confounding ordinary Americans. They’ve also stumped the head of the Federal Reserve.
Fed Chairman Ben Bernanke told reporters Wednesday that the central bank had been caught off guard by recent signs of deterioration in the economy. And he said the troubles could continue into next year.
“We don’t have a precise read on why this slower pace of growth is persisting,” Bernanke said. He said the weak housing market and problems in the banking system might be “more persistent than we thought.”
It was the Fed chief’s most explicit warning yet that the economy will face serious challenges next year. For several months, he had said the factors working against economic growth appeared to be “transitory.”
The Fed cut its forecast for economic growth this year to a range of 2.7 percent to 2.9 percent from an April forecast of 3.1 percent to 3.3 percent. It also cut its forecast for next year to a range of 3.3 percent to 3.7 percent from an earlier 3.5 percent to 4.2 percent. The Fed also said unemployment would stay higher than it had expected earlier.
In a policy statement issued at the end of a two-day meeting, the Fed blamed the worsening economic outlook in part on higher energy prices and the earthquake and tsunami in Japan, which slowed production of cars and other products.
But at a press conference afterward, the second of what the Fed says will be regular question-and-answer sessions with reporters, Bernanke conceded the economy’s troubles are more puzzling and potentially more long-lasting than a pair of temporary shocks.
The Fed announcement, which was at 12:30 p.m., had little effect on the stock and bond markets. Bernanke began speaking at 2:15, and stocks started falling at about 2:30, when he acknowledged that some of the economy’s problems could linger into next year. The Fed’s statement Wednesday stood in contrast to the Fed’s more upbeat view when officials last met, eight weeks ago. At that time, the central bank said the job market was gradually improving.