The recession is over, but unemployment will continue to be high. Yeah, sure, right.
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — Federal Reserve Chairman Ben Bernanke said Tuesday that the recession has ended, at least based on the numbers.
“From a technical perspective, the recession is very likely over at this point,” Bernanke told a conference at the Brookings Institution. But “it’s still going to feel like a very weak economy for some time.”
Bernanke added there is a risk that labor markets will remain weak through 2010 because growth will be too anemic to create jobs. Many economists now expect the labor market to recover slowly, he noted.
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Unless the economy can manage growth stronger than its long-term trend rate, “unemployment will be slow — slow to come down,” he said. “It will come down, but it may take some time.”
After acknowledging that economic forecasting “is not one of your most precise sciences,” Bernanke said most forecasters think economic growth in 2010 will be moderate because of “ongoing headwinds,” including financial and credit problems, sectoral adjustments in the economy, the desire of families to pay off debt and the need for the federal government to restrain spending.
Vince Reinhart, a former top Fed staffer who is now at the American Enterprise Institute, said the technical end of the recession is more about arithmetic than anything else.
“June was mostly likely the trough. Growth will be positive in the third quarter,” he commented. “All that tells you is that market economies do not stay in free fall. That doesn’t tell you that we have a durable expansion in motion, it doesn’t tell you growth is assured in 2010 and it doesn’t tell you that the unemployment rate goes down.”
Bernanke also expressed confidence that Congress would complete work on new rules for Wall Street.
Many analysts have raised doubts that Congress could grapple with reforming the health-care system and the financial framework this year. But Bernanke didn’t share this doubt.
“I am quite confident comprehensive reform will be coming,” the Fed chief said.
One of the reforms that’s needed is to provide some way to unwind big financial institutions “in a way that would impose market discipline, impose losses on creditors, but would avoid the disorderly chaotic type of collapse that we saw with Lehman a year ago.”
The bulk of Bernanke’s remarks was devoted to a defense of the response from the Fed and its global partners to the financial crisis. Read his prepared remarks.
Bernanke said global regulators acted swiftly in the wake of last September’s financial crisis and succeeded in bringing the global economy back from the brink of collapse. There is no longer widespread fear of a financial collapse and economic activity is leveling out, he added.
Bernanke’s remarks were similar to a speech he gave in August at the Fed’s annual retreat in Jackson Hole, Wyo.
Since the August speech, Bernanke was reappointed by President Barack Obama to a second four-year term at the helm of the central bank.
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