ben s bernanke : semiannual monetary policy report to the congress testimony by mr ben s bernanke, chairman of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 1 march 2011. * * * chairman johnson, ranking member shelby, and other members of the committee, i am pleased to present the federal reserve ’ s semiannual monetary policy report to the congress. i will begin with a discussion of economic conditions and the outlook before turning to monetary policy. the economic outlook following the stabilization of economic activity in mid - 2009, the u. s. economy is now in its seventh quarter of growth ; last quarter, for the first time in this expansion, our nation ’ s real gross domestic product ( gdp ) matched its pre - crisis peak. nevertheless, job growth remains relatively weak and the unemployment rate is still high. in its early stages, the economic recovery was largely attributable to the stabilization of the financial system, the effects of expansionary monetary and fiscal policies, and a strong boost to production from businesses rebuilding their depleted inventories. economic growth slowed significantly in the spring and early summer of 2010, as the impetus from inventory building and fiscal stimulus diminished and as europe ’ s debt problems roiled global financial markets. more recently, however, we have seen increased evidence that a self - sustaining recovery in consumer and business spending may be taking hold. notably, real consumer spending has grown at a solid pace since last fall, and business investment in new equipment and software has continued to expand. stronger demand, both domestic and foreign, has supported steady gains in u. s. manufacturing output. the combination of rising household and business confidence, accommodative monetary policy, and improving credit conditions seems likely to lead to a somewhat more rapid pace of economic recovery in 2011 than we saw last year. the most recent economic projections by federal reserve board members and reserve bank presidents, prepared in conjunction with the federal open market committee ( fomc ) meeting in late january, are for real gdp to increase 3 - 1 / 2 to 4 percent in 2011, about one - half percentage point higher than our projections made in november. 1 private forecasters ’ projections for 2011 are broadly consistent with those of the fomc participants and have also moved up in recent months. 2 while indicators of spending and production have been encouraging on balance, the job market has improved only slowly. following the

work during the past three years can accurately claim to have been made worse off by international competition. job loss in particular causes significant hardships for affected workers. for example, an analysis by henry farber ( 2003 ), using bls data on workers displaced for any reason, suggests that only about two - thirds of displaced workers found re - employment within three years, with some settling for part - time work. even when successful in finding full - time work, displaced workers experience on average a decline in earnings on the new job of about 8 percent. focusing on workers displaced by trade in particular, kletzer ( 2001 ) found that job losers in industries facing high levels of import competition were slightly less likely to be re - employed and experienced greater earnings losses, at about 13 percent on average, than workers displaced from industries facing less import competition. what can be done to help workers who lose their jobs because of competition from imports? attempts to restrict trade through the imposition of tariffs, quotas, or other trade barriers are not a good solution. such actions may temporarily slow job loss in affected industries. but they do so by imposing on the overall economy costs that typically are many times greater than the benefits. in the short run, the costs of trade barriers include higher prices for consumers and higher costs ( and thus reduced competitiveness ) for u. s. firms. trade barriers typically provoke retaliation from trading partners as well, with potentially large costs for exporters. and history shows that in the longer run, economic isolationism and retreat from international competition lead to bloated, inefficient industries, lower productivity, and lower living standards. the better policy approach is two - pronged. first, at the macro level, policy should be directed at helping to ensure that jobs become available for those who have been displaced. in particular, over time, appropriate monetary policies can help the economy achieve maximum employment with low inflation, irrespective of the trade situation. the nation ’ s trade policies, rather than attempting to restrict trade, should be used to push for even more trade. by opening markets abroad, trade policy provides greater opportunities for u. s. firms and workers. the second piece of a constructive policy toward trade is to help displaced workers train for and find new work. some steps in this direction have been taken. currently, the government ’ s principal program for helping workers displaced by trade is the trade adjustment assistance program, or taa. the congress has recently extended the