Recession likely end this year, Fed chairman says
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In a rare interview with the press, the chairman of the US Federal Reserve praised the current administration's efforts to restore confidence in the economy, saying the recession will likely end this year with a recovery following in 2010.
AFP - In his first television interview, Federal Reserve chairman Ben Bernanke predicted that America's worst recession in decades will likely end this year before a recovery gathers steam next year.
The "green shoots" of economic revival are already evident, Bernanke told CBS program "60 Minutes" in the interview broadcast late Sunday, which the network said was the first by any sitting Fed chairman in 20 years.
His assessment chimed with a new tone of cautious optimism from President Barack Obama's administration as top economic aides took to the airwaves earlier Sunday.
"It is an economic war. We haven't won yet. We have staged a wonderful battle," Christina Romer, chairwoman of the White House Council of Economic Advisers, said on NBC's "Meet the Press."
Echoed by Lawrence Summers, director of Obama's National Economic Council, Romer said a proposal from Treasury Secretary Timothy Geithner to clean out US banks' bad loans would "come out very soon."
Predicting that no more big banks will fail, Bernanke also called on Washington's squabbling politicians to show the will needed for recovery, arguing the world came "very close" to financial meltdown last September before government intervention.
The US central bank chief, whose decision to sit down last Wednesday for the rare interview underscored the gravity of the crisis, said much depends on fixing the banking system.
"We're working on it. And I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year," Bernanke said.
"We'll see recovery beginning next year. And it will pick up steam over time."
Asked if the United States had escaped a repeat of the 1930s Great Depression, Bernanke said: "I think we've averted that risk."
Last week, the blue-chip Dow Jones share index staged a stunning comeback from 12-year lows on hopes for a recovery by the battered banking sector and tentative signs of stability in some economic reports.
A government fund of 500 billion dollars is stabilizing the mortgage market, and business lending is picking up, Bernanke said.
"And I think as those green shoots begin to appear in different markets, and as some confidence begins to come back, that will begin the positive dynamic that brings our economy back," he said.
Bernanke called for tougher regulatory reform to address systemic risks posed by an institution that becomes too big to fail, blasting the "unconscionable bets" taken by giant insurer American International Group.
"It makes me angry. I slammed the phone more than a few times on discussing AIG," he said, as the bailed-out insurance group was embroiled in a new political row over hefty bonuses planned for some of its top executives.
The government is forcing AIG to hive off subsidiaries and use the profits to pay it back -- a model that Bernanke said would apply also to the major banks that have received taxpayer aid.
The banks are now being subject to a "stress test" by Geithner's Treasury team to ensure they have enough money put aside to ward off new crises, the Fed chairman noted.
"They are not going to fail," he said.
"But what we can do, should it be necessary, is try to wind it down in a safe way," Bernanke added, explaining efforts to augment banks' capital ratios and dispose of toxic assets with government help.
Government bailout money for the banking industry so far worth 700 billion dollars has proven politically toxic, especially given corporate perks and bonuses still being handed out by rescued companies.
But in remarks that could rile Republican critics of Obama's economic plans, Bernanke said "the biggest risk is that we don't have the political will."
"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," he said.
CBS interviewer Scott Pelley said that when he approached the Fed for an interview a year ago, Bernanke's representative laughed and said the publicity-shy chairman "never" does interviews.
"Well, it's an extraordinary time," Bernanke told Pelley. "This is a chance for me, I think, to talk to America directly."