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Economy could begin recovery later this year
Bernanke warns against too much optimism, unemployment likely to continue growing
Kevin G. Hall
Issue date: 5/7/09 Section: Nation and World
WASHINGTON(MCT) - The U.S. economy should begin recovering late this year but the number of unemployed people is likely to continue growing into next year and will remain a drag on consumer and business confidence, Federal Reserve Chairman Ben Bernanke said Tuesday.
Testifying before the Joint Economic Committee of Congress, the Fed chief also denied that he had strong-armed the chief executive officer of Bank of America, Ken Lewis, into hiding details of the government-encouraged merger last year with investment bank Merrill Lynch. He also expressed confidence that the soon-to-be released results of stress tests conducted on bank loan and investment portfolios will show a healthy banking sector.
Although the U.S. economy has contracted sharply since April 2008, "the recent data suggest that the pace of contraction may be slowing," and household demand for goods and services no longer is plunging, Bernanke told lawmakers in his first cautiously upbeat forecast in half a year.
Consumer spending grew in the first quarter of this year, he said, and household-spending power will be boosted by the government's fiscal stimulus plan, which passed earlier this year, and the first tentative signs of a bottom in the housing market.
"In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak," Bernanke cautioned.
He warned against too much optimism, because of steep drops in spending for equipment and software, and because loan-officer surveys suggest that demand for business loans is weakening.
"We continue to expect economic activity to bottom out, then to turn up later this year," he said, stressing that there's still plenty of room for things to go wrong. "An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall."
Testifying before the Joint Economic Committee of Congress, the Fed chief also denied that he had strong-armed the chief executive officer of Bank of America, Ken Lewis, into hiding details of the government-encouraged merger last year with investment bank Merrill Lynch. He also expressed confidence that the soon-to-be released results of stress tests conducted on bank loan and investment portfolios will show a healthy banking sector.
Although the U.S. economy has contracted sharply since April 2008, "the recent data suggest that the pace of contraction may be slowing," and household demand for goods and services no longer is plunging, Bernanke told lawmakers in his first cautiously upbeat forecast in half a year.
Consumer spending grew in the first quarter of this year, he said, and household-spending power will be boosted by the government's fiscal stimulus plan, which passed earlier this year, and the first tentative signs of a bottom in the housing market.
"In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak," Bernanke cautioned.
He warned against too much optimism, because of steep drops in spending for equipment and software, and because loan-officer surveys suggest that demand for business loans is weakening.
"We continue to expect economic activity to bottom out, then to turn up later this year," he said, stressing that there's still plenty of room for things to go wrong. "An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall."
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