The head of the Federal Reserve,, Wednesday defended his actions over the past year that were aimed at restoring normal lending in the credit markets. Bernanke declined to make specific predictions, but was cautiously optimistic that an economic turnaround may begin this year.
In nationally televised remarks from Washington's National Press Club, Bernanke said he expected the unemployment rate to rise above eight percent before the recession ends. And while he made no prediction as to when the deep downturn will end, he did say that the combination of low interest rates and fiscal stimulus should be helpful.
"If we can take strong and aggressive action, including the Fed's actions to try to improve credit markets, I think we can break the back of this thing and that we will begin to see improvements in 2009. We fail to take adequate actions, the situation will continue to deteriorate. And unemployment would obviously be higher in that case," he said.
Bernanke answered questions following his talk. He repeated his strong belief that in a severe downturn like the current one it is vital to protect the financial system.
"We must continue the efforts to stabilize the banking system and the financial system. If we do not stabilize the financial system, then fiscal policy will not lead to a sustained recovery. Both of these parts are essential," he said.
Bernanke endorsed the fiscal stimulus program, worth nearly $800 billion, that was signed into law this week. He spoke as President Obama was unveiling his program to stabilize home prices which have declined over two years and stem the wave of foreclosures on owners who do not meet their mortgage payments.
The Federal Reserve is revising downwards its economic outlook to a possible three percent decline for 2009. Previously, the Fed had projected a recovery beginning after mid-2009.