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Fed chief: US recession over

16 September 2009 08:05 (UTC +04:00)

Baku -APA-Economics. Federal Reserve chairman Ben Bernanke said Tuesday the US recession "is very likely over" technically but that the economy remains weak due to difficult credit conditions and high unemployment, AFP reported.
Bernanke, speaking at a Washington forum, said the economy is likely to show growth in the third quarter after a slump that began in late 2007 in his clearest comments to date indicating the economy has turned a corner.
"Even though from a technical perspective, the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was," he said in response to a question.
"So that’s a challenge for us and policymakers going forward."
Bernanke was speaking at a Brookings Institution economic forum a year after the collapse of Lehman Brothers triggered a financial panic and deepened the recession.
A year later, Bernanke said that there is "agreement among the forecasting community at this point that we are in a recovery," and that growth is occurring in the third quarter and will continue into 2010.
"But the general view of most forecasters is that the pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession because of ongoing headwinds," he said.
Bernanke said that activity outside the regulated banking system -- the so-called shadow banking system -- appeared to be reviving even though that sector may be less important than before the recession.
He said he saw "encouraging" signs in securitization -- the repackaging of loans that are sold to investors -- even in areas not supported by the Fed.
"I imagine that the shadow banking system, at least in the medium term, will not return to the size it was before," he said.
"On the other hand, there are a lot of securitizations that have proved their viability -- mostly plain-vanilla securitizations of various types, in consumer products, consumer lending, student loans, a variety of other things.
"We are seeing now -- very encouraging, we’re seeing more activity taking place completely outside of the Fed’s program."
Still, Bernanke noted that the tighter credit conditions will hurt growth and hurt job creation, thus impacting the overall economy for a time.
"The arithmetic is that unless the economy grows significantly faster than its longer-term growth rate, it’ll be relatively slow in creating jobs over and above those needed to employ people coming into the labor force, and therefore the unemployment rate would tend to come down quite slowly," he said.
The US economy contracted at a pace of 1.0 percent in the second quarter after a hefty 6.4 percent decline in the first quarter.
But the unemployment rate rose in August to a 26-year high of 9.7 percent as 216,000 jobs were lost. Although the pace of job losses has slowed, many analysts say unemployment could top 10 percent even with a rebounding economy.
Separately, Treasury Secretary Timothy Geithner said that US economic recovery has not yet arrived but is on that way thanks to a range of government actions including some that were "offensive."
"I would say there’s no recovery yet," Geithner said in an interview with ABC television.
"We don’t have in place yet a real recovery. We define recovery, and the president will define recovery, as people back to work, people able to get a job again, businesses investing again. And we are not at the point where we can say that yet."
Geithner said the crisis forced the government into a series of bailouts and other actions to limit the damage, which he said would help foster recovery.
"We got into this because we borrowed too much," he said.
"We lived beyond our means both as a country -- many businesses did it, many families did it, obviously the financial sector did that. But in a crisis, in a fire that was that powerful, the government had to do some deeply offensive things to help contain the damage."