KEY POINTS:
Ben Bernanke, the chairman of the US Federal Reserve, held out the tentative hope yesterday that the severe recession in the United States might be brought to an end before the end of this year on condition that the correct steps were taken over the coming days and weeks to restore financial stability and to shore up teetering banks.
His semi-annual presentation to the Senate banking committee was nonetheless the most sober so far as head of the US central bank, as the country continues to grapple with a severe economic contraction, tumbling stock indices and continuing anxiety about the stability of the banks.
Yet, his appearance seemed to go some way to calming investors, with the benchmark Dow Jones index making modest gains in morning trading - even as the independent Conference Board said its latest consumer confidence index for February was the lowest recorded in history at just 25.
Grilled by senators over what was being done to contain the crisis, Bernanke acknowledged that, in the short term, multiple risks remained, including the additional impact of the global slowdown on prospects for recovery at home as well as the mutually reinforcing cycle of weak growth and financial market strain - a dynamic, he said, that still needed to be interrupted. "To break the adverse feedback loop, it is essential that we continue to complement
fiscal stimulus with strong government action to stabilise financial institutions and financial markets," he told the committee. He seemed at pains to use his appearance to offer a glimpse of light.
"If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability - and only if that is the case, in my view - there is a reasonable prospect that the current recession will end in 2009, and that 2010 will be a year of recovery," he said.
Bernanke came to the Hill at a time when numerous policy initiatives are in hand such as the US$800 billion ($1.5 trillion) stimulus bill and the plans now being developed by Treasury Secretary Timothy Geithner, to underpin the largest of the struggling banks.
The market jitters have partly been put down to worry about the fate of Citigroup and arguments over whether saving it will require full nationalisation.
The Fed chairman was quizzed about the "stress tests" that regulators, including the Fed, will be doing to determine just how fragile the banks are.Bernanke wanted to "ensure that, even in a bad scenario, banks will have enough capital, including enough common equity, to meet their obligations to lend".
- INDEPENDENT
