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 financial services, us house of representatives, 29 february 2012. * * * chairman bachus, ranking member frank, 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 current economic conditions and the outlook and then turn to monetary policy. the economic outlook the recovery of the u. s. economy continues, but the pace of expansion has been uneven and modest by historical standards. after minimal gains in the first half of last year, real gross domestic product ( gdp ) increased at a 2 - 1 / 4 percent annual rate in the second half. 1 the limited information available for 2012 is consistent with growth proceeding, in coming quarters, at a pace close to or somewhat above the pace that was registered during the second half of last year. we have seen some positive developments in the labor market. private payroll employment has increased by 165, 000 jobs per month on average since the middle of last year, and nearly 260, 000 new private - sector jobs were added in january. the job gains in recent months have been relatively widespread across industries. in the public sector, by contrast, layoffs by state and local governments have continued. the unemployment rate hovered around 9 percent for much of last year but has moved down appreciably since september, reaching 8. 3 percent in january. new claims for unemployment insurance benefits have also moderated. the decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer - term trend ; continued improvement in the job market is likely to require stronger growth in final demand and production. notwithstanding the better recent data, the job market remains far from normal : the unemployment rate remains elevated, long - term unemployment is still near record levels, and the number of persons working part time for economic reasons is very high. 2 household spending advanced moderately in the second half of last year, boosted by a fourth - quarter surge in motor vehicle purchases that was facilitated by an easing of constraints on supply related to the earthquake in japan. however, the fundamentals that support spending continue to be weak : real household income and wealth were flat in 2011,

tests offer an independent and valuable lens on the health of the banking system. they offer us a forward - looking measurement of bank capital, a view of common and systemic risks across the banking sector, and a broader understanding of the health of the financial system. the results are valuable for markets, analysts, and ultimately, the participating firms. ten years have passed since the federal reserve conducted its first supervisory stress tests. that initial experiment helped stabilize financial markets and shore up our banking system at a critical and uncertain time. our challenge now is to preserve the strength of the test, while improving its efficiency, transparency, and integration into the post - crisis regulatory framework. to that end, the stress tests have not remained static. just in the past several days, the board acted to suspend stress tests this year for lower - risk firms — generally, those with total assets between $ 100 billion and $ 250 billion. 7 that move follows the passage of the economic growth, regulatory relief, and consumer protection act. 8 the extended cycle provides administrative burden relief for these institutions and recognizes the different risks that they typically pose — especially compared to the largest and most complex firms, whose failure poses the greatest risk to the real economy. even with this change, the stress tests remain a core part of our supervision of these firms. our experience with this “ interim ” year will inform the move to a permanently longer testing cycle — a change that would, of course, be subject to a full notice and comment process. 9 improvements like these are necessary to ensure our supervisory framework evolves from its post - crisis origins to an effective steady state. the question of how best to consolidate the gains from the first 10 years of stress testing deserves the attention and effort of the country ’ s best minds. we should welcome changes and novel ideas, even when they explore stress testing in a new and unfamiliar light. in july, as a forum for such ideas, we will host a public conference focused on the transparency and effectiveness of stress testing. called stress testing : a discussion and review, the event will convene panel discussions, drawing on a mix of presenters with industry, academic, and regulatory backgrounds. it will involve written papers, which will be compiled and published to spur further research. we expect the insights from the conference to inform the evolution of our stress - testing framework — and we hope to continue the conversation well after the conference ends. this input is as essential to our work as any public outreach we do. stress testing provides insight into