15 October 2008 21:26 [Source: ICIS news]
WASHINGTON (ICIS news)--The US economic crisis will drag on for many months and in some respects will worsen but eventually the economy will recover with renewed vigour, Federal Reserve Board Chairman Ben Bernanke said on Wednesday.
In a speech to a New York City economic group, Bernanke reviewed the extensive rescue measures taken by Congress, the White House, the Fed and foreign governments to restore confidence in US and global financial systems, saying he is confident those efforts will succeed.
“I am not suggesting that the way forward will be easy, but I strongly believe that we now have the tools we need to respond with the necessary force to these challenges,” Bernanke said.
“We will not stand down until we have achieved our goals off repairing and reforming our financial system and restoring prosperity,” he said.
Bernanke indicated, however, that further financial and business downturns are likely in the immediate future before restoration measures taken by US and other countries’ policymakers begin to take hold.
“The housing market continues to be a primary source of weakness in the real economy as well as in the financial markets, and we have seen marked slowdowns in consumer spending, business investment and the labour market,” he said.
Even with bold measures taken by Congress, the Fed and the Treasury Department - not least of which is the $700bn (€511bn) financial bailout plan approved by Congress - the return to normal credit market operations will take time, he said.
“Credit markets will take some time to unfreeze,” Bernanke said.
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“With the economies of our trading partners slowing, our export sales, which have been a source of strength, very probably will slow as well,” he said.
“These restraining influences on economic activity, however, will be offset somewhat by the favourable effects of lower prices for oil and other commodities on household purchasing power,” he added.
Even so, Bernanke suggested that it may take six to nine months before a turnaround will begin to take hold - if then.
“Ultimately, the trajectory of economic activity beyond the next few quarters will depend greatly on the extent to which financial and credit markets return to more normal functioning,” he said.
“Although much work remains and more difficulties surely lie ahead, I remain confident that the American economy, with its great intrinsic vitality and aided by the measures now available, will emerge from this period with renewed vigour,” Bernanke said.
As Bernanke spoke, the bellwether Dow Jones Industrial Average was in another freefall, eventually closing down by more than 700 points on persistent recession fears.
($1 = €0.73)
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