Fragile Economy Struggles to Rebound

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Federal Reserve Chairman Ben Bernanke goes to Capitol Hill to deliver the Fed's semi-annual report on the economy and monetary policy Wednesday. David Wessel of The Wall Street Journal talks with Renee Montagne about the state of the global economy.


NPRs business news starts with somber words from the chairman of the Fed.

(Soundbite of music)

MONTAGNE: Federal Reserve Chairman Ben Bernanke said interest rates will likely stay low for a long time. Bernanke was on Capitol Hill this morning and he told lawmakers the job market is still too weak to raise rates.

Mr. BEN BERNANKE (Fed Chairman): Of particular concern because of its long-term implications for workers' skills and wages is the increasing incidence of long-term unemployment. Indeed, more than 40 percent of the unemployed have been out of work for six months or more, nearly double the share of a year ago.

MONTAGNE: To put the economic news in a more global context, we called David Wessel. He is economics editor of the Wall Street Journal and a regular guest on this program.

Good morning.

Mr. DAVID WESSEL (Wall Street Journal): Good morning, Renee.

MONTAGNE: So David, cast your gaze across the globe and give us a snapshot of how the world is doing economically.

Mr. WESSEL: Well, in Asia the recovery is surprisingly strong. Asia is just leaping out of the starting blocks. Taiwans economy grew 18 percent in the fourth quarter at an annual rate. Thailands at 15 percent. In Europe its not nearly as good. Europe is growing very slowly, barely at all. In Germany, we were told today, in the fourth quarter the German economy didnt grow at all, and it would have shrunk if it hadnt been able to export a lot more to other places. The U.S. is somewhere in the middle.

MONTAGNE: Well, lets go back where you began and talk about Asia; how is it that its doing so well?

Mr. WESSEL: Really, the good news about Asia is that it if youre a neighbor of China, you have a strong market. The Chinese economy is benefiting from this huge dose of fiscal stimulus that they applied. In fact, its doing so well that the Chinese Central Bank is trying to put on the brakes by getting the banks to lend a little less readily, and thats spreading to the rest of Asia. But in Asian countries around China, theres a lot of consumer demand - people taking trips, buying cars and so forth, so thats propelling their economies forward at a time when the rest of the world is still in a funk.

MONTAGNE: And weve been hearing a lot about Europe, especially Greece of late. And as small as Greeces economy is, it seems to having big repercussions or at least thats the fear.

Mr. WESSEL: Right, growth is much slower all across Europe. The abilities of the Greek government to manage its budget and its debts has cast a shadow over the whole 16-country region that shares the single currency, the Euro, and so thats raised interest rates that some of the other countries have to pay when they borrow like Spain.

They have very high unemployment. Their banks havent yet come clean and dealt with all the problems that were caused by the financial crisis, and there just doesnt seem to be much oomph in the European economy, so theyre relying on exporting to the rest of the world. And thats why theyre so happy that the Euro has started to fall, 'cause the only benefit of that to them is it makes their exports cheaper.

MONTAGNE: Okay, bring us back to the U.S. How are we doing right at this moment, this morning?

Mr. WESSEL: Well, were doing better. Were not growing nearly as fast as Asia, but were doing much better than Europe. U.S. banks are much farther along in the repair process, but of course, theyre not lending very much. We learned yesterday that bank lending in the U.S. has fallen very precipitously, and unemployment remains stubbornly high and shows no signs of coming down quickly. So were doing better, but were not doing great.

MONTAGNE: So lets bring our little review here to an end by talking about the Fed. The Federal Reserve has a policy of ultra-low interest rates, has for some time. Where does all this that you just said leave the Fed?

Mr. WESSEL: Well, the Fed thinks that the economy is a little healthier and healthy enough so they can end some of their emergency lending programs that they put in during the crisis. But it's not healthy enough to raise short-term interest rates from the near zero level where they are or to drain some of the trillions of dollars theyve pumped into the economy.

Their latest forecast shows that they expect unemployment to remain high -above eight percent through 2011. They see very little upward pressure on inflation. So I think theyre trying to convince everybody that they are prepared to turn the credit spigot when the time comes, but that time isnt here yet. Its at least six or eight months away.

MONTAGNE: David, always a pleasure to talk with you.

Mr. WESSEL: Youre welcome, Renee.

MONTAGNE: David Wessel is economics editor of The Wall Street Journal.

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