Bernanke expects recovery later this year
I am watching Bernanke at the congressional hearing. You can see his prepared testimony at CR here. But, the general take on what he is saying is that the economy has reached its worst rate of decline and should improve steadily until it actually recovers later this year. He also says that major impediments remain, commercial real estate being one.
Here is how Reuters describes his testimony before Congress (note the optimistic title “Bernanke sees U.S. economy turning up this year”):
The U.S. economy is on track for a recovery later this year, but the pickup is likely to be sluggish and the jobless rate is likely to rise further, Federal Reserve Chairman Ben Bernanke said on Tuesday.
“We expect economic activity to bottom out, then to turn up later this year,” he said in testimony prepared for delivery to the congressional Joint Economic Committee.
Bernanke said the expected recovery will only gradually gain steam and that the economy would grow below its longer-run potential for a while. He also cautioned that recovery could be derailed by a relapse of financial strains.
“Businesses are likely to be cautious about hiring, implying that that the unemployment rate could remain high for a time, even after economic growth resumes,” he said.
What I also found interesting is his use of the phrase “Scylla and Charybdis” when talking about the policy challenges facing the Fed. Ron Paul and several others have asked how will the Federal Reserve ensure that inflation doesn’t get out of hand after recovery is in hand. Several others asked him what he was doing to get credit into the hands of Americans. His phraseology is exactly how I summarizing Bruce Krasting’s excellent recap of the Fed’s policy dilemma (see the links post today). Bernanke used the phrase in response to questions by Chuck Schumer (D-NY) regarding Allan Meltzer and Paul Krugman’s criticisms in the New York Times yesterday (see Krugman here and Meltzer here).
The New York Times describes his general testimony as follows (note the pessimistic title “Bernanke Sees Hopeful Signs but No Quick Recovery”):
The chairman of the Federal Reserve, Ben S. Bernanke, said on Tuesday that the economy appears to be stabilizing on many fronts but cautioned that a recovery is still months away and that “further sizable job losses” will continue even after an upturn begins.
“We continue to expect economic activity to bottom out, then to turn up later this year,” Mr. Bernanke told the congressional Joint Economic Committee, according to his prepared remarks.
“Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while,” he predicted. “We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly.”
Notwithstanding his caveats, the Fed chairman gave his most upbeat assessment since the United States fell into its most severe financial crisis since the Depression and its steepest recession since at least the early 1980s.
The long and short here is that Bernanke is saying we have bottomed and he expects recovery later this year. He is as worried about a deflationary spiral as inflation and wants to “tae the punch bowl away” as soon as monetary easing is no longer necessary. All that said, it is clearly evident that these remarks will be spun according to the inclination of the particular writer as the Reuters and New York Times headlines attest. And that is important because a few members of Congress quoted directly from the media in formulating questions. Another member remarked that Congress was beholden to Bernanke’s judgment because they did not have the expertise to make these decisions without his guidance. These revelations demonstrate that it is all the more important to present an accurate and balanced view of the situation if we are to expect a good policy outcome from our elected officials. This is true for bloggers as much as it is for journalists or professional economists.
UPDATE 820PM ET: See Bernanke in his own words in the video below.