Posted on 05 May 2009
The U.S. economy will begin to turn up later this year provided the financial sector continues to mend, although unemployment will remain high for a while, Federal Reserve Chairman Ben Bernanke said Tuesday.
In testimony to a congressional committee, Bernanke sounded more confident that a recovery was at hand than he had in recent weeks.
He said the U.S. housing market may be bottoming after a three-year slide, and pointed to tentative signs of a rebound in consumer spending, which is the driving force behind the economy.
"We continue to expect economic activity to bottom out, then to turn up later this year," Bernanke said in the testimony to the Congress' Joint Economic Committee.
However, he added that even after the recovery begins, "the rate of growth of real economic activity is likely to remain below its longer-run potential for a while."
That will leave slack in the economy, keeping inflation low, which in turn suggests that the central bank will keep interest rates low for some time.
The Fed dropped benchmark overnight interest rates to near zero in December.
After a meeting on April 28-29, it repeated that it would likely hold borrowing costs at an unusually low level for "an extended period."
Bernanke mentioned the so-called "stress tests" regulators have been conducting at the 19 largest U.S. banks, but he offered no insight into the findings.
Final results from the tests, aimed at determining whether the firms have a big enough capital cushion to withstand a deeper downturn, are expected to be released Thursday.
He also said the Fed would soon release more details on the various lending programs it has launched to try to ease the credit crisis, including information on the number of borrowers and the collateral accepted.
While he stopped short of agreeing to name borrowers, as some lawmakers have requested, he acknowledged that the central bank had a responsibility to keep Congress and the public informed about its lending programs and balance sheet.
That has become a contentious issue as the central bank has extended massive amounts of loans to banks as well as other firms that have not traditionally turned to the Fed in its role of lender of last resort.
"I want to commend you for establishing greater transparency at the Fed," Representative Carolyn Maloney, chairman of the Joint Economic Committee, said in a statement.
"To be sure, there are fewer 'secrets of the temple' today, but I know you will appreciate that we must continue to work to strike a better balance between institutional interests and the public's right to know how their money is being spent," the New York Democrat said.