Bernanke Cautious on Economic Growth as Oil Prices Rise

WASHINGTON — Federal Reserve Chairman Ben S. Bernanke expressed confidence on Tuesday that the American economy would continue to grow this year, despite rising oil prices and a weak housing market.  “We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” Mr. Bernanke said in testimony. But he added that “until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

And the Fed chief again defended the Fed’s large and unprecedented stimulus program, saying that it was playing a crucial role in the recovery and that it was too soon to suspend or start winding down that support. Mr. Bernanke also cautioned that a sustained rise in oil prices could be a threat to the economy, but he noted that the probable outcome of the higher prices was a temporary and modest increase in consumer inflation. His testimony on Tuesday marks the first of his twice-a-year trips to Capitol Hill to explain the Fed’s monetary policy — in particular, the continuing purchase of hundreds of billions of dollars in government debt to stimulate economic growth by reducing the interest rates that businesses and consumers must pay on loans.

Republicans in particular are concerned that the program will increase inflation at a time when the economy is already recovering. Mr. Bernanke, who has fallen into a rhythm with those critics, will tell them again Tuesday that spurring growth remains his greater concern.

Still, the job market and housing remain weak, Mr. Bernanke said, though he cited some signs of improvement, including “notable declines in the unemployment rate in December and January, a drop in new claims for unemployment insurance, and an improvement in firms’ hiring plans.”

“The overhang of vacant and foreclosed houses is still weighing heavily on prices of new and existing homes,” he said, “and sales and construction of new single-family homes remain depressed.”

“Many potential home buyers are still finding mortgages difficult to obtain and remain concerned about possible further declines in home values,” he said in his remarks.

Both the Fed and independent experts estimated that inflation would remain at modest levels not just this year but next year and the year after that, Mr. Bernanke said in his prepared testimony. “Inflation has declined, on balance, since the onset of the financial crisis, reflecting high levels of resource slack and stable longer-term inflation expectations,” he said.

The Federal Open Market Committee, the Fed’s main policy arm, voted unanimously at its January meeting to continue the $600 billion Treasury purchase plan, the second round of a strategy that is intended to ease credit and spur growth.

Mr. Bernanke on Tuesday also sought to ease concerns about increases in the price of oil and other basic commodities like wheat, steel and sugar, which he said were unlikely to spark significant inflation or to impede economic growth. The reason is that American consumers spend most of their money on finished products, not basic commodities. The cost of building blocks like wheat is a relatively small factor in determining the price tag on a box of sugared cereal. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” Mr. Bernanke said. He added, however, that a “sustained” rise in the price of basics “would represent a threat both to economic growth and to overall price stability.”

“Currently, the cost pressures from higher commodity prices are also being offset by the stability in unit labor costs,” he said in his remarks.