ben s bernanke : the economic outlook and monetary and fiscal policy testimony by mr ben s bernanke, chairman of the board of governors of the federal reserve system, before the committee on the budget, us house of representatives, washington dc, 9 february 2011. * * * chairman ryan, ranking member van hollen, and other members of the committee, i am pleased to have this opportunity to offer my views on the economic outlook, monetary policy, and issues pertaining to the federal budget. the economic outlook the economic recovery that began in the middle of 2009 appears to have strengthened in the past few months, although the unemployment rate remains high. the initial phase of the recovery, which occurred in the second half of 2009 and in early 2010, was in large part attributable to the stabilization of the financial system, the effects of expansionary monetary and fiscal policies, and the strong boost to production from businesses rebuilding their depleted inventories. but economic growth slowed significantly last spring and concerns about the durability of the recovery intensified as the impetus from inventory building and fiscal stimulus diminished and as europe ’ s fiscal and banking 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 rose at an annual rate of more than 4 percent in the fourth quarter. although strong sales of motor vehicles accounted for a significant portion of this pickup, the recent gains in consumer spending appear reasonably broad based. business investment in new equipment and software increased robustly throughout much of last year, as firms replaced aging equipment and as the demand for their products and services expanded. construction remains weak, though, reflecting an overhang of vacant and foreclosed homes and continued poor fundamentals for most types of commercial real estate. overall, improving household and business confidence, accommodative monetary policy, and more - supportive financial conditions, including an apparently increasing willingness of banks to lend, seem likely to result in a more rapid pace of economic recovery in 2011 than we saw last year. while indicators of spending and production have been encouraging on balance, the job market has improved only slowly. following the loss of about 8 3 / 4 million jobs from 2008 through 2009, private - sector employment expanded by a little more than 1 million in 2010. however, this gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants to the labor force and, therefore,

options to improve the payments landscape. we continue to conduct research to fully understand technological innovations and their associated benefits, risks, and tradeoffs. we must also fully understand any related implications for federal reserve payment infrastructure and policy outcomes. researchers cover a wide range of policy areas, including payments policy, privacy considerations, financial inclusion, financial stability, and monetary policy implications. because new digital assets are currently focused on tokenization of certain traditional or even new types of money, tokenization is a research theme for the federal reserve and for central banks globally. while this topic is relevant to cbdc research work, it will also inform other issue areas — including discussions about stablecoin regulation, novel banking activities supervision, and efforts to improve the current payment system. technologists at the board and the reserve banks have been conducting focused research and experimentation to provide insight into technical capabilities and risks associated with digital assets, including cbdc, and the programmable platforms that could support payment infrastructure improvements. these experiments give the researchers hands - on experience with new technologies and allow the federal reserve to examine the application of emerging technologies in retail, wholesale, and cross - border use cases. - 13 the federal reserve board continues to collaborate closely with international counterparts on issues related to digital payments. this includes engagement with multilateral institutions, such as the bank for international settlements, g7, financial stability board, and bilateral engagements with other central banks. this work reflects the interconnectedness of the global financial system and allows us to follow actions taken by other jurisdictions and understand any related implications for the united states. conclusion as the money and payments landscape evolves, i continue to stress the importance of looking ahead and analyzing potential changes that may emerge well into the future. this can be done most effectively by understanding the broad range of options that could be leveraged to improve payments, including technology, improvements to existing payment infrastructure, and policy options and their implications. given the breadth of activity in this space, i believe that policymakers must specify the problems they are trying to solve, understand the range of alternatives that could address any problems, including policy and technology options, and thoroughly analyze the associated risks and tradeoffs. for all of the federal reserve ’ s involvement in this work, i support a responsible approach to innovation that recognizes the role of private sector innovations, benefits from the strengths of the u. s. banking system, and focuses policymakers on thinking about payment and financial system infrastructure and effective policy. to achieve this, i support a clear regulatory