No economist in Washington holds greater sway than America's Federal Reserve chairman, tasked with anticipating economic cycles and adjusting the nation's monetary policy accordingly.
Addressing a joint congressional hearing, Ben Bernanke predicted that the recession, which has dragged on for 1 1/2 years, is nearing an end.
"We continue to expect economic activity to bottom out, then to turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize. Final demand should also be supported by fiscal and monetary stimulus," he said.
But the Federal Reserve chief warned that more tough times lie ahead. "Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for awhile. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate will remain high for a time even after economic growth resumes," he said.
Bernanke said the U.S. unemployment rate, which has leapt by three percentage points during the past year, could continue to rise months after economic growth resumes. He also warned that economic recovery could be undermined if progress in reviving America's banking and financial system suffers a setback.
On Thursday, financial regulators are expected to release the results of so-called "stress tests" to gauge the ability of large U.S. banks to withstand further economic shock.
Bernanke declined to give a preview of results, but he did offer this comment: "Substantial concerns about the banking industry remain," he said.
Economists say a global credit crunch helped push the United States and much of the world into recession. Without a healthy banking sector, experts warn that credit flows will remain impaired, making it difficult for businesses and consumers to finance economically beneficial activities.
Dozens of ailing U.S. banks and financial services providers have received federal bailout money from a massive $700-billion rescue package approved by Congress last October. Most of those funds have been spent and the Obama administration says it is not inclined to ask for additional funding. Instead, the administration says banks will have to rely primarily on private sources to raise capital in the future.
