Fed chief: Iffy recovery keeps rates low

WASHINGTON - Federal Reserve Chairman Ben S. Bernanke warned yesterday that it's too soon to know whether the economic recovery will last, and he again pledged to hold rates at record-low levels for an "extended period."

The Fed chief's speech to the Economic Club of Washington made clear he thought the economy would struggle even as it recovers from the recession, which began in December 2007. He said the economy confronted "formidable headwinds" - including a weak job market, cautious consumers, and tight credit.

Those forces "seem likely to keep the pace of expansion moderate," he said.

The central bank has leeway to keep rates low because inflation is under control and is expected to stay tame in the face of the economy's weakness. Some private forecasters even fear that the recovery could fizzle late next year as government stimulus spending fades.

Asked about prospects for such a "double dip" recession, Bernanke said he could not guarantee it won't happen.

He stuck with his forecast for a moderate recovery but said a "vigorous snapback" was less likely.

Bernanke said he expected "modest" economic growth next year.

That should help push down the nation's unemployment rate - now at 10 percent - "but at a pace slower than we would like," he acknowledged.

Under one Fed forecast released last month, the jobless rate would remain high next year - ranging from 9.3 to 9.7 percent. The Fed has warned that it could take five or six years for the job market to return to normal.

To nurture the recovery, the Fed has kept rates at a record low near zero for a year. When asked about rates yesterday, Bernanke joked: "Well, they can't go much further down."

He went on to repeat the Fed's pledge to keep rates at record lows for an extended period.

Economists took Bernanke's remarks as indicating he was not in a rush to raise rates.

"Bernanke's main message is that the Fed still remains very committed to policies that will provide further support for a stronger recovery," said Brian Bethune, economist at IHS Global Insight. "There hasn't been dramatic-enough improvements in the economy to make any major changes."