Ben Bernanke knows a recession when he sees one, and he's starting to sound like that's what he expects to see. A student of the Great Depression...
WASHINGTON — Ben Bernanke knows a recession when he sees one, and he’s starting to sound like that’s what he expects to see.
A student of the Great Depression, the Federal Reserve chairman once served on the very panel of experts that unofficially determines when recessions begin and end — a finding that usually comes well after the fact.
Now for the first time, Bernanke as Fed chief acknowledged Wednesday the U.S. could reel into recession from the powerful punches of housing, credit and financial crises. Yet, he was coy about the Fed’s next move.
With home foreclosures hitting record highs and job losses mounting, Bernanke offered Congress an unflinching — and more pessimistic — assessment of potential damage to the national economy.
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“A recession is possible,” said Bernanke, who in his two years at the helm is under immense political and public pressure to turn things around.
“Our estimates are that we’re slightly growing at the moment,” he said, “but we think that there’s a chance that for the first half as a whole there might be a slight contraction.”
Under one rule of thumb, six straight months of a shrinking economy would constitute a recession, but Bernanke wasn’t getting into that.
“A recession is a technical term,” he said. “I’m not yet ready to say whether or not the U.S. economy will face such a situation.”
Whether or not the economy already is in its first recession since 2001 — and many economists believe it is — the housing debacle and other economic woes are a major concern for homeowners, job losers and investors.
That means they’re a concern to Congress and the presidential contenders, too, and the Fed and the White House have been thrust into crisis-management mode.
Hoping to limit damage, the central bank has been slashing interest rates since the start of the year in an effort to get people and companies spending again.
“We are fighting against the wind,” Bernanke said, “at least offsetting significantly the headwinds coming from these financial factors.”
But he didn’t offer a clear signal about the Fed’s interest-rate intentions from here on.
Still, economists believe the Fed probably will drop its key rate again at its meeting at the end of April.
Some analysts predicted the rate would fall as low as 1.5 percent this year, from the current 2.25 percent.
“The Fed has pulled out all the stops to rescue both financial markets and the economy, and now is probably hoping for the best,” said Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group.
Employers slashed jobs in January and February, and Friday’s report for March could show more losses. The nation’s unemployment rate, at 4.8 percent, probably will move higher in coming months, Bernanke told Congress’ Joint Economic Committee.
Striking a hopeful note, he said he expects economic growth to pick up in the second half of the year and into 2009, helped by the government’s $168 billion stimulus package of tax rebates for people and tax breaks for businesses, as well as the Fed’s aggressive rate reductions.
“Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year,” Bernanke said.
On the hot seat, Bernanke was grilled by senators about the Fed’s moves to aid the once- mighty Wall Street firm Bear Stearns, and about additional actions Congress and the White House should take to help struggling homeowners.
“I hope that you will use your position to jawbone this administration to get behind the housing-relief effort before Congress,” said committee Chairman Charles Schumer, D-N.Y.
“Addressing the housing crisis head-on will do as much to instill confidence in the markets as lowering interest rates or bolstering regulatory oversight of wayward mortgage lenders and financial institutions. We need to do all of it,” Schumer said.
Bernanke urged Congress to do more to bolster the housing market and to aid people in danger of losing their homes. But he refused to be pinned down on specific recommendations in other areas, such as how to help struggling state governments hit by the crisis.
That exasperated Sen. Edward Kennedy, D-Mass., who pleaded: “What are we going to tell the states? … The states are in a critical situation.”
Today, Bernanke and officials from the New York Fed, Treasury Department and Securities and Exchange Commission, along with officials from Bear Stearns and JP Morgan, are scheduled to testify before the Senate Banking Committee.