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At Forum, Fed Chairman Calls for Patience on Stimulus

In part two of Jim LehrerÆs conversation with Ben Bernanke, the Federal Reserve chief discusses the state of the Obama administrationÆs economic recovery efforts, and the central bank's efforts to help homeowners facing foreclosure.

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  • JIM LEHRER:

    Part two of our NewsHour forum with Federal Reserve Chairman Ben Bernanke. He spoke Sunday night with a group of citizens from and around Kansas City, Missouri. We broadcast the first section last night. Here now is the second part of "Bernanke On the Record" from the Federal Reserve Bank of Kansas City.

  • JIM LEHRER:

    All right. Let's move on now to the recovery. And the first question to James Thomas, to the recovery itself now, to the present.

  • JAMES THOMAS:

    James Thomas, recent economics graduate from UMKC. With the first phase of the stimulus bill in effect now — in my opinion, failed — what do you think worked and didn't work?

  • BEN BERNANKE:

    Well, I would say that it might be a little bit early to make that judgment. First of all, let me say one other thing, which is the stimulus package is the administration and Congress. The Federal Reserve's got nothing to do with it. I mean that's — you know, it's a different part of the government.

    But having said that, I think we have to wait a bit longer. The stimulus package is a big $787 billion package, but something like a quarter of that is getting spent this year, and not even all of that is actually going into the system this year, so most of the money that's in that package is in 2010. So it may or may not succeed, but I think we've got to give it a bit more time.

  • JIM LEHRER:

    Bob Litan, you have a similar question, a follow-up question on that.

  • BOB LITAN:

    I'm Bob Litan from the Kauffman Foundation.

    It's widely known among economists that the employment situation lags the general economy, that you really need the economy to grow at something like 2.5 percent a year in order to absorb the new workers and also to absorb productivity. So that means unemployment's going to continue rising even as the economy starts to recover. Can you give us any idea of when unemployment's going to peak out and then at what level?

  • BEN BERNANKE:

    Well, nobody really knows for sure, of course. Economic forecasting makes weather forecasting look like physics.

    (LAUGHTER)

    But you're absolutely right. It takes about 2.5 percent growth to absorb new workers, keep the unemployment rate about constant. Right now we're seeing growth in the second half of the year, but our best guess, and it's only a guess, is that growth in the second half of the year will be about 1 percent on an annual basis. So that's not enough to bring down the unemployment rate.

    So our projections — the members of the Federal Open Market Committee, which is the committee that sets monetary policy, puts out forecasts or projections four times a year which are publicly available, and our projections suggest that the unemployment rate will probably keep rising, probably a bit above 10 percent, it'll peak early in 2010, and then begin gradually to come down.

    We could be wrong. It could be a stronger recovery than that. But you're absolutely right that, even after the economy starts to grow again, and we're hoping to see that in the next third and fourth quarters, it'll be a while before the labor market, the job market, is back to where we want it to be.

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