Fed chief Bernanke confident on recovery, warns on deficit

WASHINGTON - Federal Reserve Chairman Ben S. Bernanke told Congress on Wednesday that he had confidence the unfolding economic recovery would have staying power, although it wouldn't be strong enough to bring quick relief to high unemployment.

Bernanke, testifying before Congress' Joint Economic Committee, repeated his call for lawmakers and the White House to come up with a plan to whittle down record-high federal budget deficits.

Though sizable deficits right now are "unavoidable" given the damage wrought by the recession, the persistence of red ink raises risks to the country's long-term economic health, he said.

A credible plan to pare the deficit could provide the economy with quick benefits, including lower longer-term interest rates and increased consumer and business confidence, he told the lawmakers.

"Addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult," he warned.

On the economy, Bernanke seemed more optimistic that the recovery will keep on going after government stimulus fades later this year. Reports issued Wednesday on the economy suggest that growth in demand by consumers and businesses "will be sufficient to promote a moderate economic recovery in coming quarters," he said.

In fact, the odds of a "double dip" recession, in which the economy would start shrinking again, have receded, Bernanke said. The risk of that happening "while not negligible is certainly less than it was a few months ago," he observed.

Rep. Carolyn Maloney (D., N.Y.), chairwoman of the committee, welcomed the message, but she said the government must remain focused on "fixing the economy, putting people back to work, and helping struggling families." The unemployment rate in March was 9.7 percent, about double what it was when the recession started in December 2007.

Consumers are spending again after cutting back sharply during the recession, Bernanke noted. Going forward, consumer spending should be helped by a gradual pickup in jobs, a slow recovery in household wealth from recent lows, and some improvement in the ability to get loans, he said.

That assessment of consumers - whose spending accounts for 70 percent of national economic activity - also appeared more upbeat. In recent weeks, Bernanke and other Fed officials have cited a litany of headwinds facing consumers, including high unemployment, rising home foreclosures, and sluggish wage growth.