Compounding heightened insecurity on the prospect of a double-dip recession, the U.S. Commerce Department on Friday released a gloomy second-quarter report that showed economic growth had remained flat at 1.6 per cent.
The rate was significantly lower than the 2.4 per cent that a majority of surveyed economists had expected, and combined with an unemployment rate stuck stubbornly at 9.5 per cent, it has cast serious doubts upon the prospects for a sustained recovery under the Obama administration.
However, in a speech on Friday, Ben Bernanke, Chairman of the Federal Reserve, said that he expected the economy “to continue to expand in the second-half of this year, albeit at a relatively modest pace.”
Mr. Bernanke added that the Fed stood ready to undertake policy measures to support what growth was there, noting that additional purchases of longer-term securities, should the Federal Open Market Committee choose to undertake them, would be effective in further easing financial conditions.
The Fed Chairman also underscored that the employment situation had not shown adequate improvement. He noted that data on the labour market remained “disappointing,” and private sector employment grew only sluggishly.
He further said that the small decline observed in the unemployment rate was attributable “more to reduced labour force participation than to job creation, and initial claims for unemployment insurance remain high.”
Emphasising the flexible approach of the Fed to deal with a variety of possible economic outcomes he said that the central bank was already supporting the economic recovery by maintaining an “extraordinarily accommodative monetary policy, using multiple tools.” Should further action prove necessary, Mr. Bernanke added, policy options were available to provide additional stimulus.
