ben s bernanke : economic outlook and policy testimony by mr ben s bernanke, chairman of the board of governors of the federal reserve system, before the joint economic committee, us congress, washington dc, 7 june 2012. * * * chairman casey, vice chairman brady, and other members of the committee, i appreciate this opportunity to discuss the economic outlook and economic policy. economic growth has continued at a moderate rate so far this year. real gross domestic product ( gdp ) rose at an annual rate of about 2 percent in the first quarter after increasing at a 3 percent pace in the fourth quarter of 2011. growth last quarter was supported by further gains in private domestic demand, which more than offset a drag from a decline in government spending. labor market conditions improved in the latter part of 2011 and earlier this year. the unemployment rate has fallen about 1 percentage point since last august ; and payroll employment increased 225, 000 per month, on average, during the first three months of this year, up from about 150, 000 jobs added per month in 2011. in april and may, however, the reported pace of job gains slowed to an average of 75, 000 per month, and the unemployment rate ticked up to 8. 2 percent. this apparent slowing in the labor market may have been exaggerated by issues related to seasonal adjustment and the unusually warm weather this past winter. 1 but it may also be the case that the larger gains seen late last year and early this year were associated with some catch - up in hiring on the part of employers who had pared their workforces aggressively during and just after the recession. 2 if so, the deceleration in employment in recent months may indicate that this catch - up has largely been completed, and, consequently, that more - rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions. economic growth appears poised to continue at a moderate pace over coming quarters, supported in part by accommodative monetary policy. in particular, increases in household spending have been relatively well sustained. income growth has remained quite modest, but the recent declines in energy prices should provide some offsetting lift to real purchasing power. while the most recent readings have been mixed, consumer sentiment is nonetheless up noticeably from its levels late last year. and, despite economic difficulties in europe, the demand for u. s. exports has held up well. the u. s. business sector is profitable and has become more competitive in international markets. however

from those changes. once risks have been identified comprehensively, assessed, and evaluated as to their potential impact on the organization, management must determine the effectiveness of existing controls and develop and implement additional appropriate mitigating controls where needed. the robustness and effectiveness of these controls must be evaluated independently, soon after the control structure is established, so that any shortcomings can be identified promptly and corrected. risk assessments initiated early in the planning process can give the firm time to implement mitigating controls and conduct a validation of the quality of those controls before launching the product. strong internal controls and governance require that these assessments be done by an independent group. one of the weaknesses that we have seen is that management delegates both the development and the assessment of the internal control structure to the same risk - management, internal audit, compliance, or legal division. instead, it is important to emphasize that line management has the responsibility for identifying risks and ensuring that the mitigating controls are effective, and that the assessments should be done by a group independent of that line organization. an enterprise - wide approach also can integrate the risk assessment of functions that have traditionally been managed in “ silos ”. conflicts can arise in many different areas and functions of the firm, including sales and research. conflicts can also occur when compensation structures create incentives inconsistent with prudent risk management or when the bottom line for the current quarter is unduly emphasized without adequate consideration of the risk being taken to accomplish those results. the potential for these conflicts to arise must be addressed squarely by senior management, and appropriate controls must be in place to manage and mitigate conflicts. a culture of compliance should establish - from the top of the organization - the proper ethical tone that will govern the conduct of business. in many instances, senior management must move from thinking about compliance chiefly as a cost center to considering the benefits of compliance in protecting against legal and reputational risks that can have an impact on the bottom line. it is important to note that the board of directors and senior management of financial firms are responsible for setting the “ tone at the top ” and developing the compliance culture that has been discussed at this conference. the board and senior management are obligated to deliver a strong message to others in the firm about the importance of integrity, compliance with the law, and overall good business ethics. they also need to demonstrate their commitment through their individual conduct and their response to control failures. the message and corresponding conduct should empower line staff to el