Federal Reserve Chairman Ben Bernanke suggested in a taped interview on Sunday that the US recession could last most of the year and said the biggest risk was that the political will needed to fix the fractured financial system could be lacking.
“This (economic) decline will begin to moderate and we’ll begin to see a leveling off,“ Bernanke said when pressed during an interview on the CBS program ‘60 Minutes’ about whether he sees the recession ending this year. “We won’t be back to full employment. But we will, I hope, see the end of these declines that have been so strong in a last couple of quarters,” he said.
Bernanke told the US Congress in January that the Fed believes there is a reasonable prospect the recession that took hold in December 2007 will end this year and that 2010 will be a year of recovery. In the rare on-record interview, he largely stuck to that view, while suggesting recent developments may have dimmed the outlook a bit.
“We’ll see the recession coming to an end probably this year,” Bernanke said. “We’ll see recovery beginning next year.”
Government efforts to combat the crisis have been criticized as stock markets have plunged and unemployment has soared even as authorities have stepped in repeatedly to prop up firms such as insurer American International Group.
The financial system remains fragile, despite a $700 billion bailout of the banking system approved by Congress in October and US President Barack Obama has said more money will likely be needed to repair debt-laden banks.
The Fed chairman said his greatest worry is that lawmakers and the public will withdraw support for efforts aimed at stabilizing the shattered banking system. “The biggest risk is that, you know, we don’t have the political will,” he said. “We don’t have the commitment to solve this problem, and that we let it just continue.” “In which case ... we can’t count on recovery.”
Recent economic data have pointed to an intensifying economic downturn. The US unemployment rate rose to a 25-year high in February as employers cut 651,000 jobs, taking the recession’s job loss total to 4.4 million. Home and auto sales have slid in recent months and manufacturing has contracted.
The Fed’s recent reluctance to name AIG trading partners benefiting from a $180 billion taxpayer-funded bailout of the insurer drew harsh criticism from lawmakers. AIG earlier on Sunday named those counterparties.
Separately, a plan US Treasury Secretary Timothy Geithner sketched out in February to stabilize banks was criticized by many financial market participants for lacking details.
Geithner, who was lampooned on the widely viewed comedy program ‘Saturday Night Live’ as casting about desperately for solutions to the crisis, plans to unveil more details this week. Bernanke said he decided to grant a television interview because “it’s an extraordinary time.”
“This is a chance for me, I think, to talk to America directly,” he said.
The Fed chairman acknowledged the depth of public resentment against institutions like AIG that have been the recipients of tens of billions of dollars of government aid.
“I come from Main Street,” Bernanke said, during a segment of the interview that was taped in his home town of Dillon, South Carolina. “I care about Wall Street for one reason and one reason only -- because what happens on Wall Street matters to Main Street.” (Reuters)