Bernanke: Higher U.S. unemployment to linger

The chairman of the U.S. Federal Reserve told Congress Friday that the central bank will stick with its massive bond-buying program because it will take years for American unemployment to drop to more normal levels.

Ben Bernanke told the Senate budget committee in Washington, D.C., there's increasing evidence that a "self-sustaining" economic recovery is taking hold, but there's still a need for the Fed's $600-billion US government debt purchase program.

Bernanke predicted the U.S. economy should grow more strongly this year as consumers and businesses boost their spending.

Factories are cranking up production. The service sector is growing at its fastest pace in more than four years.

Fewer people applied for unemployment benefits over the past month than in any other four-week period in more than two years. Consumers are spending more freely, and a payroll tax cut is likely to boost their activity further.

However, Bernanke said that even with the expected improvements, it could still take four to five years for unemployment to drop to a historically normal rate of around six per cent.

"Notwithstanding these hopeful signs ... (with) employers reportedly still reluctant to add to payrolls, considerable time likely will be required before the unemployment rate has returned to a more normal level," Bernanke said.

"Persistently high unemployment, by damping household income and confidence, could threaten the strength and sustainability of the recovery," he warned.

Job gains disappoint

Bernanke spoke the same day as the U.S. government released a disappointing employment report. It suggested employers added only 103,000 jobs in December.

While the unemployment rate fell to 9.4 per cent, that was partly because people gave up looking for jobs.

Many economists had forecast much bigger job gains, expecting that the labour market recovery had turned a corner.

The Fed's bond purchases are designed to boost the economy by lowering interest rates and lifting stock prices.

Republicans in Congress have criticized the program, contending it will do little to help the economy and could hurt it by unleashing inflation and speculative buying on Wall Street.

The move heightened tensions with trading partners including China, Germany and Brazil. They complained it was really a scheme to push down the value of the dollar, giving U.S. exporters a competitive edge.