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Fed’s Bernanke: Recession is ‘Very Likely Over’

Posted By RVBusiness On September 15, 2009 @ 3:04 pm In Breaking News | No Comments

Federal Reserve Chairman Ben Bernanke said today (Sept. 15)  that the worst U.S. recession since the Great Depression is probably over, but the recovery will be slow and will take time to create new jobs.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said after giving a speech at a Brookings Institution conference, according to Reuters.

In declaring the recession over, Bernanke went slightly beyond the Fed’s most recent assessment that the economy was leveling off and that indications on growth had improved.

However, he cautioned that growth next year would probably be not much faster than the economy’s so-called long-run potential rate, which meant it would be slow to absorb excess capacity and pare the unemployment rate.

“The general view of most forecasters is that that pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession because of ongoing headwinds,” Bernanke said.

He spoke on the one-year anniversary of the collapse of Lehman Brothers, which sparked a global panic that forced the Fed to cut interest rates to almost 0 percent.

Economists generally estimate U.S. trend potential growth to be in a range around 2.5%.

Bernanke acknowledged that a recovery could turn out to be either stronger or weaker than forecasters expect, but warned of ongoing pain in the labor market under the expected growth rate.

“Of course there are risks on both sides of that forecast — we could have a stronger recovery, we could have a weaker recovery,” he said.

“But if we do in fact see moderate growth, but not growth much more than the underlying potential growth rate, then unfortunately, unemployment will be slow to come down.”

U.S. unemployment has soared to 9.7% since the recession began in December 2007, and is forecast to hit 10% in the months ahead.

Bernanke’s comment implicitly acknowledges the possibility of a stronger-than-expected “V-shaped” U.S. recovery. The latest Blue Chip survey of economists predicts that growth will expand by a brisk 3% annual rate in the third quarter.

Fed policy-makers meet next week and are expected to keep rates pegged between 0 and 0.25% when they conclude their two-day meeting on Wednesday, while maintaining purchases of longer dated U.S. government and mortgage-related debt.

Federal Reserve Bank of Richmond President Jeffrey Lacker said on Monday that policy-makers must consider if they want to continue adding stimulus to the economy now that the recovery seems on track.

With the benchmark lending rate virtually at 0, the Fed has focused on driving down other borrowing costs by buying mortgage-related debt and U.S. government bonds.

But other Fed officials have not signaled that they favor stopping short of the $1.45 trillion mortgage debt purchase program, which is currently scheduled to end in December. The Fed has already announced plans to taper down a $300 billion longer-dated Treasury buying program by the end of next month.

Asked about the Obama administration’s plan for a sweeping overhaul of U.S. financial regulation, Bernanke said he was optimistic it would be concluded, but acknowledged that U.S. lawmakers have so far been more focused on health-care reform.

“I feel quite confident that a comprehensive reform will be forthcoming. This has just been too big a calamity and too serious a problem, and clearly regulatory problems were part of it,” he said.

Obama’s plan would give the Fed more power to oversee big financial firms deemed important to the health of the system, beef up laws to make it easier to wind down any big firm that gets into trouble, while creating a watchdog to protect consumers from complex financial products that lay at the heart of the subprime mortgage crisis that laid Lehman low.

“The Federal Reserve’s perspective is that we don’t want to be in the position that we were in last October and September, and so we’re very interested in trying to support a reform that will be effective, that will go a long way to preventing this type of crisis from recurring in the future,” Bernanke said.

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