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US Federal Reserve chief Ben Bernanke - Source: Reuters
US Federal Reserve chief Ben Bernanke offered his clearest
signal yet that he thinks a global recovery is at hand, but warned
growth would be sluggish and unemployment stubbornly high.
"After contracting sharply over the past year, economic activity
appears to be levelling out, both in the United States and abroad,
and the prospects for a return to growth in the near term appear
good," Bernanke told an annual Fed conference here in the shadows
of the Grand Teton mountains.
Bernanke, speaking to central bankers and top economists from
around the world, said aggressive policy actions had managed to
avert what could have been a worse outcome, but he stopped short of
issuing an all-clear.
"Although we have avoided the worst, difficult challenges still lie
ahead," he said, cautioning that the recovery is likely to be
relatively slow at first, with unemployment declining only
gradually from high levels.
His remarks went a small step beyond a statement from Fed
policy-makers last week in which the central bank simply
acknowledged the US economy was levelling out.
US stocks rallied on Bernanke's cautious optimism and
better-than-expected data on US home sales, with the benchmark
S&P 500 index rising to a new 10-month high.
Bernanke said critical challenges remain from financial markets
still strained from the severe crisis that broke two years ago.
The difficulties households and businesses face in getting loans
is another source of stress, he said.
Analysts said the guarded remarks were in keeping with the view the
US central bank would be very cautious in moving to remove the
enormous support it has provided to the economy.
"The recession may have ended, but it's still a very challenging
environment out there," said Mark Vitner, senior economist at Wells
Fargo in Charlotte, North Carolina.
"The Fed has to be careful about withdrawing the liquidity from
the economy."
Crisis prevention
Germany, France and Japan have pulled out of recession and the US
economy appears to be stabilizing as well.
The Fed chopped interest rates to near zero in December and has
pumped around $US1 trillion into financial markets to combat the
crisis and spur economic growth.
It has said it plans to keep rates unusually low for an extended
period to help pull the economy out from its deepest recession
since the 1930s, but it has begun to dial back some of its
emergency measures.
Last week, it said it would phase out its purchases of long-term
US Treasuries.
The Fed's actions have gained traction.
Data out on Friday showed previously owned US homes sold at the
fastest pace in two years in July.
While the US economy appears to be gaining health, analysts worry a
recovery could prove fleeting.
Expectations for solid growth in the second half of the year
reflect the impact of a government program to spur car buying and
an anticipated restocking of inventories.
US consumer demand is still weak and unemployment is
rising.
In his talk, Bernanke recapped how central banks reacted to the
series of flashpoints in the crisis. Without speedy actions by the
Fed - some of which were unfortunately unavoidable - the panic
could have intensified, he said.
Declining use of some of the Fed's emergency facilities is a clear
signal financial markets are normalizing, he added.
"As severe as the economic impact has been ... the outcome could
have been decidedly worse," Bernanke said.
