Ben Bernanke: best hope is recovery in 2010
The Federal Reserve chairman said that the US economy will only recover if Washington’s bail-out plans succeed this year
The future prosperity of the world’s biggest economy is dependent on President Obama’s $1 trillion bet to dig America out of the worst recession for decades, the US central bank has warned.
In a testimony to the Senate, Ben Bernanke, Federal Reserve chairman, said that the US economy will only recover this year if Washington’s bail-out plans succeed in helping the country’s fractured financial system to return to normal.
He told politicians on Capitol Hill that if White House fiscal stimulus proposals and the continued financial assistance from the Fed have their desired effect, the American economy should begin to grow again in the second half of this year.
Mr Bernanke said: “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.”
But new house price figures published yesterday, which showed no sign of recovery, and data indicating that consumer confidence had hit a new low, illustrated the size of the task facing President Obama and the Fed to encourage Americans to start spending again.
According to the S&P Case-Shiller US house price index, property prices had sunk 27 per cent by December from their peak in the second quarter of 2006. The final three months of 2008 saw US property prices drop at a record rate, plummeting 18.2 per cent – the biggest year-on-year decline in the index’s 21-year history.
Separately, new figures showed that US consumer confidence plunged to a record low in February. That slide is expected to result in a 4 per cent decline in retail sales across the country this year. Consumer spending, of which retail sales are a part, is vital for the prosperity of the US economy, accounting for two-thirds of growth.
While America slid into a recession in December 2007, the economy has since deteriorated at an astonishing rate. In the fourth quarter of 2008, the US economy shrank by 3.4 per cent, a number which this month is expected to be revised down to 5.5 per cent. Wall Street is expecting the first quarter of 2009 to be equally bad, but less severe in the second quarter, followed by modest growth in the second half of the year. Unemployment — 6.7 per cent of the US workforce is out of a job — is expected to continue to rise well into 2010.
The Dow Jones industrial average also took strength from Mr Bernanke's words rising by 179.37 points or 2.52 per cent to 7,294.15 in late afternoon trading in New York. Yesterday it had plunged by 250.89 points – or 3.5 per cent – to 7,114.78, its lowest level since May 1997.
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