Fed Chairman Ben Bernanke spoke Monday at the annual meeting of the Southern Legislative Conference in Charleston, South Carolina. He addressed the economic outlook as well as fiscal challenges for state governments.
Bernanke stressed that while there are improvements in the economy, recovery is slow and many challenges remain. Overall, the economy is expanding at a “moderate pace,” he told the Council of State Governments. However, “notable restraints on the recovery persist,” including a weak housing market and a stunted labor market.
“Financial conditions–though much improved since the depth of the financial crisis–have become somewhat less supportive of economic growth in recent months,” Bernanke said, highlighting foreign debt crises as a major source of turmoil for global markets.
The U.S. banking system is still struggling, Bernanke admitted. There are some improvements – high bank capital ratios and a peak in loan loss rates – but strict lending standards and troubled loans continue to plague the industry.
In addressing the fiscal challenges states face, Bernanke said states have an “opportunity to serve as role models for effective long-term fiscal planning.” Among the challenges local governments face are funding pensions – compounded by the impending retirements of the baby boomers – and ever more expensive health care obligations. Bernanke noted that health care cost projections decades into the future is an uncertain science, but cited research from the Pew Center on the States that estimates state governments will need nearly $600 billion to fund retiree health benefits.