US recession ‘may last into 2010’
US Federal Reserve chief Ben Bernanke has warned Congress that without the right policies from the government, the US recession could last into 2010.
But he said if the Obama administration and the central bank can restore some measure of financial stability, 2010 could be a year of recovery.
Mr Bernanke made the comments to the Senate Banking Committee.
He also warned that the global nature of the downturn was a threat because exports would be hit.
In its attempts to revive the economy, the Federal Reserve has cut its key interest rate to nearly zero, while the Obama administration has recently signed a $787bn (£546bn) economic stimulus package.
Mr Bernanke said that the potential economic turnaround would hinge on the success of such measures in getting credit and financial markets to operate more normally again.
“Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” he said.
Vicious circle
Mr Bernanke reassured legislators that he was, “committed to using all available tools to stimulate economic activity and to improve financial market functioning”.
But he also outlined long-run predictions for the economy, which he said reflected “the view of policymakers that a full recovery of the economy from the current recession is likely to take more than two or three years”.
He described a vicious circle of rising unemployment and shrinking house prices and savings forcing consumers to cut back, which would in turn increase unemployment.
“To break that adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilise financial institutions and financial markets,” he said.
Speaking of the concern about bankers benefiting from bail-outs, he added that the country “ought not abstain from saving the financial system just because it rewards people who erred”.
Sliding confidence
Mr Bernanke’s testimony came shortly after data showed that consumer confidence in February had fallen to the lowest level since the Conference Board began reporting the figures in 1967.
Its sentiment index fell to a much worse-than-expected 25.0 in February from January’s figure of 37.4.
“We just got the worst consumer confidence number ever on record,” said Matt Esteve, a foreign exchange trader at Tempus Consulting in Washington.
“Following yesterday’s awful sell-off in the stock market, it just highlights the risk that there is right now.”
House prices
There were also figures showing that the decline in US house prices had accelerated.
The S&P Case Shiller house price index showed the price of a single-family home had fallen 18.5% in December, compared with the same month of 2007.
It was the biggest drop since the index began being calculated 21 years ago.
“There are very few, if any, pockets of turnaround that one can see in the data,” said David Blitzer, chairman of S&P’s index committee.
“Most of the nation appears to remain on a downward path.”
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