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Lingering Headwinds Make Recovery ‘Disappointingly Slow’

While various economic reports hint at improvements in the nation's economy since the economic crisis was in full swing, improvement is meek and ""recovery"" seems too strong a word to describe the progress thus far. ""Federal Reserve Chairman Ben Bernanke"":http://www.federalreserve.gov/aboutthefed/bios/board/bernanke.htm calls the pace of recovery ""disappointingly slow.""


In a speech before the New York Economic Club Tuesday, Bernanke pointed out some of the lingering headwinds preventing the economy from more momentous progress.

Significant among these headwinds is the housing sector itself.

To make his point, Bernanke quoted a few notable statistics.

""House prices declined almost one-third nationally from 2006 until early this year, construction of single-family homes fell two-thirds, and the number of construction jobs decreased by nearly one-third,"" he said.

Home sales, prices, and construction have shown some forward movement this year, which Bernanke said is ""encouraging"" and expects to see residential investment become a ""source of economic growth and new jobs over the next couple of years.""


However, a ""powerful housing recovery"" is still being prevented, and one of those obstacles is tight lending, according to Bernanke.

Outside the housing market, the credit and capital markets serve as another financial headwind for the nation's economy. In particular, the financial situation in Europe has been and continues to be a cause of stress and uncertainty.

The third financial headwind Bernanke mentioned is U.S. fiscal policy. This concern can be divided into three major categories â€" the fiscal cliff, the federal debt limit, and monetary policy.

""Uncertainty about how the fiscal cliff, the raising of the debt limit, and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy,"" Bernanke said.

The fiscal cliff that looms if tax laws remain unchanged ""would pose a substantial threat to the recovery,"" Bernanke said. Similarly, failing to approve a new federal debt limit would damage the economy.

While the third category, monetary policy, ""can do little to reverse the effects that the financial crisis may have had on the economy's productive potential,"" Bernanke asserted the Federal Reserve is doing everything in its power to contribute positively to the economy.

Such actions include additional mortgage-backed-securities purchases and an extension of the maturity of the Fed's Treasury holdings. While it is still early to assess the impact of these actions, Bernanke says research suggests they are already having a positive effect.


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