Bernanke tells committee he sees ‘increased evidence’ of recovery

Bernanke made the positive comments about the economy in testimony to the Senate Budget Committees after the Labor Department reported that unemployment dropped to 9.4 percent in December. 

“Overall, the pace of economic recovery seems likely to be moderately stronger in 2011 than it was in 2010,” Bernanke told the senators. 

At the same time, he warned of ongoing problems in the labor market that would keep the jobless rate at a high level for some time. 

Bernanke said the labor market has grown “modestly at best,” and is picking up barely enough steam to create enough jobs for new entrants to the workforce. As a result, “considerable time likely will be required before the unemployment rate has returned to a more normal level,” he said in his testimony.

At the current rate, it could take four to five years for the job market to return to normal, he said. Notwithstanding some unexpected growth in the economy, the unemployment rate will likely linger around eight percent two years from now, he added.

Furthermore, the housing market remains a drag on the economic recovery, as an excess of vacant housing continues to “weigh heavily” on home prices and the construction of new homes.

Bernanke pushed back against arguments, primarily from Republicans, that the recent Fed decision to buy back $600 billion of Treasury bonds would cause high inflation. The Fed is “unwaveringly committed” to keeping prices stable, and has “all the tools it needs to ensure it will be able to smoothly and effectively exit from this program at the appropriate time,” he said.

The Fed launched the new round of “quantitative easing” to try to stimulate the economy.