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Fed chief Ben Bernanke said he was "dissatisfied" with the pace of the economy's growth.
With the economy mired in the worst downturn in decades, Fed Chairman Ben Bernanke has been taking heat from all sides.
Even as the Federal Reserve issued a gloomier outlook for job growth and the economy, Bernanke defended the central banks’ latest decision to sit back, watch for more hopeful signs of growth and hope that its 3-year-old, cheap-money policies will eventually kick start a solid recovery.
“As I've said before, I understand that many people are dissatisfied with the state of the economy,” Bernanke told reporters following a regular two-day meeting of policymakers. “I'm dissatisfied with the state of the economy. Unemployment is far too high.”
In an update of economic projections it issued in June, the Fed lowered its growth outlook for the next three years. Gross domestic product is now seen growing at just 1.6 percent this year (down from 2.8 percent in the June foredcast) and just 2.7 percent next year (down from 3.9 percent).
The expected lower growth prompted the Fed to raise its predictions for the unemployment rate -– to a stubbornly high 8.6 percent by the end of the year, up from a projection of 7.8 percent five months ago. Central bankers now predict that the jobless rate will remain above 7 percent through 2014.
In a 45-minute session with reporters, Bernanke alternated between defending the Fed’s actions since the global financial system collapsed in 2008 and sympathizing with critics who say the Fed hasn’t done enough. But he insisted that Fed policies have made a difference.
“Our best estimates are that, absent the support of monetary policy, that the economy would be in a much deeper ditch and that unemployment would be much higher than it is,” he said
But he conceded that “the pace of progress is likely to be frustratingly slow."
Some of the criticism has come from the left, including the widening Occupy Wall Street protest movement, which faults the Fed for bailing out bankers who made the risky bets that led to the collapse. Those critics, Bernanke said, don’t fully understand the reasons for the Fed’s massive intervention following the financial meltdown.
"A very simplistic interpretation of that was because we wanted to preserve bankers' salaries,” he said. “That obviously wasn't the case. What we were doing was trying to protect the financial system in order to prevent a serious collapse of both the financial system and the American economy."
The Federal Reserve chairman responds to a question about Occupy Wall Street, saying he understands frustration with the economy. "I am dissatisfied with the state of the economy," Bernanke said. "Unemployment is too high."
Bernanke has also been a target of criticism from the right for dumping trillions of dollars of newly created cash into the economy to blunt the impact of a massive credit contraction in 2008. Several Republican presidential candidates have attacked that policy on the grounds that it risks promoting runaway inflation. Those criticisms are also misplaced, Bernanke said.
“We have kept inflation close to 2 percent on average, which both has avoided the problems of high inflation, but also very importantly has avoided the risk of deflation we've seen in other countries," he said. “That deflation can be a very pernicious problem and difficult to get out of once you are there. So we have been able to achieve, on average, stable prices."
In any case, Bernanke said, political opposition to Fed policies would not sway the central bank. Though he acknowledged that the Fed needs to be accountable to Congress, he vowed to continue making policy based economics, not politics.
"Politics is politics, and the Federal Reserve tries to stay nonpartisan,” he said. "Our job is to do the best we can for the U.S. economy, to do what we can to attain our mandate of maximum employment and price stability."
The Fed chairman also noted that the central bank can’t revive economic growth and reduce unemployment by itself, saying “it would be helpful” if Congress and the White House did more to support job growth. He also noted that the Fed has little control over decisions made by European policy who continue to wrestle with a widening debt crisis that threatens to plunge Europe into another recession.
Click here to watch the full news conference:
The Federal Reserve chairman speaks on the health of the economy, saying growth will be "frustratingly slow," and takes reporters' questions. Watch the whole news conference.