NEW YORK CITY-Although the economy has been buffeted byheadwinds that have hindered “what otherwise might have been astronger cyclical rebound,” Federal Reservechairman Ben Bernanke sees a couple of reasons toexpect faster GDP growth in the future. “First, the effects of thecrisis on potential output should fade as the economy continues toheal,” Bernanke said in a speech Tuesday at the New York EconomicClub here. “And second, if the headwinds begin to dissipate, as Iexpect, growth should pick up further as many who are currentlyunemployed or out of the labor force find work.”

Those headwinds, though, are blowing in from all corners of theUS as well as from Europe, and range from the slow recovery inhousing to a financial sector that’s still on the mend. “Banks’capital positions and overall asset quality have improvedsubstantially over the past several years, and, over time, thesebalance sheet improvements will position banks to extendconsiderably more credit to bank-dependent borrowers,” Bernankesaid in prepared remarks. “Indeed, some types of bank credit, suchas commercial and industrial loans, have expanded notably in recentquarters.” Nonetheless, he continued, “banks have been conservativein extending loans to many consumers and some businesses,” acaution he said stems from lenders’ “continued desire to guardagainst the risks of further economic weakness.”

The still-volatile fiscal and financial situation in Europe onlyadds to the risks “that US financial institutions, businesses, andhouseholds must consider when making lending and investmentdecisions,” said Bernanke. He noted that European policymakers havetaken “some important steps recently,” but added that furtherimprovement in global financial conditions will depend partly onhow the policymakers follow through on these initiatives.