Newly retired Federal Reserve chairman Ben Bernanke is "moderately optimistic" about U.S. growth prospects but added the global economy is not out of danger yet.
In his first public speaking engagement in the United States since stepping down in February, Mr. Bernanke said the U.S. financial sector has finally recovered to the point where it can contribute to growth through increased lending.
"You are starting to see a healthy bank system where it can support an economic recovery," the former Fed chief said Friday at an IHS CERA's energy conference.
At the same time, the housing sector and labour market have improved significantly, as underscored by Friday's report that the U.S. economy added 175,000 jobs in February.
"I'm moderately optimistic at this point," he said. "But it still has a ways to go before it gets to where we would like it to be."
While industrialized economies in North America, Europe and East Asia appear to be on the mend – though at different paces – China remains a major risk as it transitions from an export-oriented economy to one that relies more on domestic activity.
Mr. Bernanke recalled the dark days of 2008 and 2009, when the world economy teetered on the brink of a total financial collapse that would have turned a deep recession into a full-scale depression.
He acknowledged that Federal Reserve policies have often face considerable opposition, including the unprecedented "quantitative easing" strategy that saw the central bank buy up financial assets to inject liquidity into the system.
But he defended the quantitative easing as a necessary tool, and said it could only be unwound slowly, as the economy repairs itself.
He said global governments and central banks need to remember the lessons of the recession – notably the vulnerability of the financial system to unanticipated risk – and ensure the system is adequately capitalized and properly regulated to minimize the impact of future crises.
"We learned a lot but we also learned not to be complacent," he said. We – the United States, the government, the regulators, the private sector participants – have seen what the downside is. We need to avoid having short memories. . . and keep our eye on the financial system."
One major boon for the American economy has been the boom in oil and gas production that contributed to direct job creation, lowered the U.S. trade deficit and drove down the energy prices in North America to the benefit of consumers and manufacturers.
"It has clearly been one of the most beneficial, if not the most beneficial factor" to the recovery, he said.
But Mr. Bernanke said the Federal Reserve has had to bear too much responsibility to keep the U.S. recovery on track, as governments engaged in partisan battles over things like the debt ceiling, and pursued short-term spending cuts that through people out of work and weakened the economy.
But even there, the former Fed chief said battles in Washington over fiscal issues appeared to have abated for now, while governments at all levels are no longer slashing spending as aggressively as they had been.