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Fed Chief Paints Rosy Economic Picture, But Mind the Thorns

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In a widely anticipated speech, Federal Reserve Chairman Ben S. Bernanke said Friday that even though the economy’s short-term outlook remains weak, we are nevertheless in the midst of a recovery that will grow in future years.

But he also gave a veiled warning that the Fed has done basically all it can to spur the economy, and now it’s up to other leaders to do their part.

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“With respect to longer-run prospects, however, my own view is more optimistic,” Mr. Bernanke said in his prepared remarks. “The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years.”

That means the Fed is unlikely to change its plan to keep the federal funds rate low through at least mid-2013, as we covered earlier in August. But since the rate stands at a paltry .25%, there’s little else the Fed can do to spur growth anyway, a fact that Bernanke acknowledged.

[Related Article: Fed to Keep Rates Low for Next 2 Years to Stave Off Recession]

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” he said.

Instead, Bernanke urged other parts of the government to do more to spur a lasting economic recovery. He gently criticized politicians for turning this summer’s debt ceiling debate into a game of brinksmanship that nearly caused a full-fledged economic collapse, and encouraged them to invest in education, research and development, and public infrastructure projects that will help the economy improve in the long term.

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And he urged politicians to end the stalemate in Washington.

“Finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions,” Bernanke said.

Image: U.S. government, via Wikimedia Commons

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