WASHINGTON — Federal Reserve Chairman Ben Bernanke gave his most optimistic prediction yet Tuesday about the end of the recession, saying he expects the economy to start growing again this year — although the comeback could be weak and more jobs will disappear even after a recovery takes hold.
Bernanke told Congress’ Joint Economic Committee that he saw hopeful signs, including firmer home sales, a revival in consumer spending and some improvement in lending conditions for banks, businesses and individual borrowers.
“We continue to expect economic activity to bottom out, then to turn up later this year,” he said.
Previously, Bernanke has suggested the recession could end this year if the government managed to stabilize the financial markets.
This time, he said not only that he expects an end to the recession this year but also a return to growth.
For that to happen, he said, the banking system must continue to stabilize.
“A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall,” Bernanke said.
Barring such a setback, Bernanke suggested the worst of the recession — for lost economic activity — has passed. Economists say the recession started in December 2007, then hit with force in the fall of last year when the financial crisis intensified.
He suggested that even in a recovery, economic activity would probably still be below normal, which some economists say is around 2.5 percent growth, and “only gradually gain momentum.”
The unemployment rate stood at 8.5 percent in March, a quarter-century high, and some economists believe it could hit 10 percent. But Bernanke said the unemployment rate probably would climb to somewhere in the 9 percent range.
While tax cuts from the economic-stimulus plan and a sense that the economy is no longer in free fall may help people feel freer to spend, rising unemployment and shattered nest eggs may give them second thoughts.
Bernanke provided no details about how the 19 large banks forced to undergo government “stress tests” have fared. The results, due out Thursday, will detail which banks could need more government help if the recession gets even worse.
What he’s said
Federal Reserve Chairman Ben Bernanke’s recent comments on the economy:
Jan. 13: “Fiscal policy can stimulate economic activity, but a sustained recovery will also require a comprehensive plan to stabilize the financial system and restore normal flows of credit,” Bernanke said at the London School of Economics.
Feb. 24: Bernanke said he hoped the recession will end this year but that there were significant risks. Any economic turnaround will hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again.
March 3: Testifying before the Senate Budget Committee on the bailout of American International Group, Bernanke didn’t repeat remarks he had made a week earlier that the recession could end this year if the government succeeded in turning around wobbly financial markets.
March 10: The recession was more severe than the Fed had expected, Bernanke acknowledged after a speech to the Council on Foreign Relations. Still, he added, there’s a “good chance” the recession could end this year if the government managed to get financial markets to operate more normally again.
March 15: “We’ll see the recession coming to an end probably this year” if the government succeeds in bolstering the banking system, Bernanke said on CBS’s “60 Minutes.”
April 3: He said he expects a “gradual resumption of sustainable economic growth.” However, he didn’t say when in remarks to a Fed conference in Charlotte, N.C.
April 14: “Recently, we have seen tentative signs that the sharp decline in economic activity may be slowing,” Bernanke said in a speech at Morehouse College in Atlanta. “To be sure, we will not have a sustainable recovery without a stabilization of our financial system and credit markets.”
Tuesday: “We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke told lawmakers, sounding more confident about the prospects for a recovery later in 2009.
The Associated Press; photo by Brendan Smialowski, Bloomberg News
