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September 16, 09

NEWS / Federal Reserve Head Says U.S. Recession Very Likely Is Over

By Merle David Kellerhals Jr.
Staff Writer

Washington — Federal Reserve Chairman Ben Bernanke says that “very likely” the current recession is over, but the U.S. economy will remain weak for some time and the national unemployment rate will come down slowly.

“Many people will still find that their job security and their employment status is not what they wish it was,” Bernanke said at a September 15 economic conference at the Brookings Institution, a public policy research center in Washington. The consensus of forecasters is that the economy has begun its recovery and that growth in the third quarter of this year will continue well into 2010, he said.

“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,” Bernanke said. Keeping economic growth lower than expected will be the slow return of credit lending by financial institutions and the slow restoration of consumer confidence in spending, he said.

Bernanke said the economy won’t create many more jobs than the number needed for people newly entering the labor force, so the unemployment rate will come down slowly. The U.S. Bureau of Labor Statistics reported that unemployment in August rose to a 26-year high of 9.7 percent.

Bernanke and Treasury Secretary Timothy Geithner have warned that withdrawing government-sponsored emergency lending programs too early could generate a new round of economic problems. Officials at the Federal Reserve — the nation’s central bank — and the Treasury Department have begun studying when and how to begin gradually withdrawing lending programs. But waiting too long could spur a different unintended consequence: high inflation.

In the coming weeks, Bernanke said, policymakers in the United States and around the globe must begin urgently addressing structural weaknesses in the international financial system. Leaders of the Group of 20 (G20) advanced and fastest growing economies will hold a summit in Pittsburgh September 24–25 to address many of those questions and take stock of what lies ahead. The G20 finance ministers and central bank governors recently met in London to help set the agenda for the summit.

Without government action, Bernanke said, the crisis could have been worse.

“Unlike the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal and financial policies around the world have been aggressive and complementary,” he said. “Without these speedy and forceful actions, last October’s panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk.”

The U.S. business cycle is charted by a committee of economists at the National Bureau of Economic Research. The committee spends significant time evaluating economic trends before announcing the beginning and end of recessions. The bureau previously said the current recession began in December 2007, but it may be many months before an announcement signals the formal end of the recession.




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