US Fed Chairman Bernanke sees recession end this year

24 February 2009 16:58  [Source: ICIS news]

WASHINGTON (ICIS news)--Federal Reserve Board Chairman Ben Bernanke said on Tuesday he expects the US recession will end later this year with a slow recovery beginning in 2010 but taking more than two or three years to restore normal growth.

However, Bernanke said his outlook for the beginning of a US economic recovery next year assumes that multibillion dollar stimulus measures and financial rescue plans authorised by Congress, the White House and the Fed will have the desired effect of stabilising housing and lending markets.

Speaking before the Senate Banking Committee in his semi-annual report to Congress on the nation’s economic health, Bernanke said that “there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery”.

He cautioned, however, that a recovery may take a long time to restore normal 3-3.5% annual growth to the nation’s economy.

He said that policymakers at the Fed - the US central bank - hold the view that “a full recovery of the economy from the current recession is likely to take more than two or three years”.

Bernanke emphasised that his outlook “is subject to considerable uncertainty” and depends on the success of bail-out, stimulus and rescue packages already launched by Congress, the administration of President Barack Obama and the Fed aimed at restoring consumer confidence and liquidity in credit markets.

The various stimulus and stabilisation plans already taken by US and foreign policymakers are beginning to bear fruit, he said.

“The measures taken by the Federal Reserve, other US government entities and foreign governments since September have helped to restore a degree of stability to some financial markets,” Bernanke said.

“In particular, strains in short-term funding markets have eased notably since the fall, and London interbank offered rates (Libor) - upon which borrowing costs for many households and businesses are based - have decreased sharply,” he added.

“Issuance of investment-grade corporate bonds has been strong, and speculative-grade insurance, which was near zero in the fourth quarter, has picked up somewhat,” Bernanke said.

He cautioned, however, that “despite these favourable developments, significant stresses persist in many markets ... and some financial institutions remain under pressure”.

“It is essential that we continue to complement fiscal stimulus with strong government action to stabilise financial institutions and financial markets,” he concluded.

Noting that the Fed’s current federal funds interest rate remains at 0-0.25%, he said the central bank’s interest rates are likely to remain at exceptionally low levels for some time.

Citing actions taken by the central bank, Congress and the White House, Bernanke said that “We believe these actions ... will contribute to a gradual resumption of economic growth and improvement in labour markets conditions in a context of low inflation.”

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