Fed Chairman: Economy, State Governments Continue to Face Challenges

Fed Chairman: Economy, State Governments Continue to Face Challenges

The U.S. economy—while growing at a moderate pace—still has a "considerable way to go to achieve a full recovery," said Federal Reserve Chairman Ben Bernanke during an Aug. 2 speech in Charleston, S.C.

photo of Ben Bernanke

Speaking at the annual meeting of the Southern Legislative Conference, Bernanke noted that some sectors of the economy, such as manufacturing and business investment in equipment and software, have gained steam. However, many Americans are still burdened by high unemployment, foreclosures, and diminished savings, he added.

State budget issues weigh on economic growth
Bernanke also highlighted the challenges facing state and local governments, which are facing fiscal pressures because of declining tax revenues and greater demand for Medicaid and other social programs. Many state and local jurisdictions are struggling to provide essential services, and the resulting cuts to government programs and employment are contributing to the sluggish economy, Bernanke said.

While fiscal pressures should ease somewhat as economic activity picks up, state legislatures will still face longer-term issues related to mounting pension liabilities and the rapidly increasing cost of health benefits. Further, "with economic conditions still far from normal, state budgets will probably remain under substantial pressure for a while, leaving governors and legislatures a difficult juggling act," he added.

Bernanke urges constructive solutions, investments in education
Healthy local economies are essential as state governments begin to confront these complex challenges, Bernanke said. Such efforts should include investments in human capital through education and workforce development, he said, noting that "no economy can succeed without a high-quality workforce, particularly in an age of globalization and technical change."

Additionally, Bernanke urged legislators to avoid across-the-board cuts in existing state programs, suggesting that they instead "be willing to make significant changes to deliver necessary services at a lower cost."

August 31, 2010