Bernanke Sees Bright Spots on GDP Horizon

NEW YORK CITY-Although the economy has been buffeted by headwinds that have hindered “what otherwise might have been a stronger cyclical rebound,” Federal Reserve chairman Ben Bernanke sees a couple of reasons to expect faster GDP growth in the future. “First, the effects of the crisis on potential output should fade as the economy continues to heal,” Bernanke said in a speech Tuesday at the New York Economic Club here. “And second, if the headwinds begin to dissipate, as I expect, growth should pick up further as many who are currently unemployed or out of the labor force find work.”

Those headwinds, though, are blowing in from all corners of the US as well as from Europe, and range from the slow recovery in housing to a financial sector that’s still on the mend. “Banks’ capital positions and overall asset quality have improved substantially over the past several years, and, over time, these balance sheet improvements will position banks to extend considerably more credit to bank-dependent borrowers,” Bernanke said in prepared remarks. “Indeed, some types of bank credit, such as commercial and industrial loans, have expanded notably in recent quarters.” Nonetheless, he continued, “banks have been conservative in extending loans to many consumers and some businesses,” a caution he said stems from lenders’ “continued desire to guard against the risks of further economic weakness.”