ben s bernanke : economic and financial conditions and the federal budget before the committee on the budget speech by mr ben s bernanke, chairman of the board of governors of the federal reserve system, at the us house of representatives, washington dc, 9 june 2010. * * * chairman spratt, ranking member ryan, and other members of the committee, i am pleased to have this opportunity to offer my views on current economic and financial conditions and on issues pertaining to the federal budget. the economic outlook the recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year. moreover, the economy – supported by stimulative monetary policy and the concerted efforts of policymakers to stabilize the financial system – appears to be on track to continue to expand through this year and next. the latest economic projections of federal reserve governors and reserve bank presidents, which were made near the end of april, anticipate that real gross domestic product ( gdp ) will grow in the neighborhood of 3 - 1 / 2 percent over the course of 2010 as a whole and at a somewhat faster pace next year. 1 this pace of growth, were it to be realized, would probably be associated with only a slow reduction in the unemployment rate over time. in this environment, inflation is likely to remain subdued. although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the recovery in economic activity. real consumer spending has risen at an annual rate of nearly 3 - 1 / 2 percent so far this year, with particular strength in the highly cyclical category of durable goods. consumer spending is likely to increase at a moderate pace going forward, supported by a gradual pickup in employment and income, greater consumer confidence, and some improvement in credit conditions. in the business sector, real outlays for equipment and software posted another solid gain in the first quarter, and the increases were more broadly based than in late 2009 ; the available indicators point to continued strength in the second quarter. looking forward, investment in new equipment and software is expected to be supported by healthy corporate balance sheets, relatively low costs of financing of new projects, increased confidence in the durability of the recovery, and the need of many businesses to replace aging equipment and expand capacity as sales prospects brighten. more generally, us manufacturing output, which has benefited from strong export demand, rose at

possible to say with confidence what would have happened if these measures had not been taken, it is surely the case that whatever pressures ccps faced would have been many times greater, and the potential consequences much greater as well. moreover, as ccps grow into their enhanced role in the financial system, they will represent an ever larger locus for systemic risk. it is therefore important not to be lulled into a false sense of security that past performance is a guarantee of future ccp success. after the crisis, governments firmly resolved that even the largest financial institutions must be allowed to fail and be resolved without taxpayer support and without threatening the broader financial system or the economy. ccps therefore need to adapt to a world in which their largest clearing members will be allowed to fail and to be resolved without taxpayer support. and, as i will discuss a little later, the same is true of ccps – they, too, should have no expectation of taxpayer support if they fail. to say it as plainly as possible, the purpose of all of this new infrastructure and regulation is not to facilitate the orderly bailout of a ccp in the next crisis. quite to the contrary, ccps and their members must plan to stand on their own and continue to provide critical services to the financial system, without support from the taxpayer. see, for example, jerome h. powell ( 2013 ), “ otc market infrastructure reform : opportunities and challenges, ” speech delivered at the clearing house 2013 annual meeting, new york, november 21 ; and ben s. bernanke ( 2011 ), “ clearinghouses, financial stability, and financial reform, ” speech delivered at the 2011 financial markets conference, a meeting sponsored by the federal reserve bank of atlanta, held in stone mountain, ga., april 4. bis central bankers ’ speeches the road ahead : meeting the challenges as you can see, central clearing represents the confluence of critical market infrastructure and systemic financial institutions. as a result, the regulation and supervision of ccps present particular challenges. what matters most is the stability of the entire system, not that of one sector or another. in the united states, ccps are primarily regulated by either the commodity futures trading commission or the securities and exchange commission. under authority provided by the dodd - frank wall street reform and consumer protection act of 2010, the federal reserve also plays a role in supervising and regulating systemically important ccps and other financial market utilities. 6 in addition, the federal reserve is the holding company supervisor of a