(Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended, while warning that growth may not be strong enough to quickly reduce the unemployment rate.
“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,” Bernanke said today at the Brookings Institution in Washington, responding to questions after a speech.
The remarks are Bernanke’s most explicit statement that the contraction that began in December 2007 is over. They echoed comments yesterday by San Francisco Fed President Janet Yellen and followed a report today showing retail sales rose last month by the most in three years, adding to evidence of a recovery.
“Unemployment will be slow to come down” if growth turns out to be “moderate” and not much more than the economy’s underlying potential, Bernanke said.
The central bank has kept the benchmark lending rate as low as zero since December and in August said “exceptionally low” rates are likely warranted for “an extended period.”
The policy-setting Federal Open Market Committee also said in its Aug. 12 statement that there were signs that “economic activity is leveling out.” The Fed’s Beige Book report last week said that 11 of its 12 regional banks reported signs of a stable or improving economy in July and August.
Yellen said in a speech yesterday that the U.S. summer “likely marked the end of the recession, and the economy should expand in the second half of this year. A wide array of data supports this view.”
The unemployment rate reached 9.7 percent in August, a quarter-century high, and employers have eliminated almost 7 million jobs since the recession started, the biggest drop in any post-World War II economic downturn. Banks worldwide have recorded more than $1.6 trillion of losses and writedowns since the start of 2007, data compiled by Bloomberg show.
The central bank in March authorized $1.45 trillion in purchases of mortgage-backed securities and other housing debt this year. Policy makers decided last month to taper off a $300 billion program buying U.S. Treasuries through October, while debating a similar move for MBS purchases. Bernanke convenes the next meeting of Fed policy makers Sept. 22-23 in Washington.
The economy will rebound at a 2.3 percent pace next year, according to the median estimate in a Bloomberg News survey of economists. The growth rate won’t be fast enough to lower the unemployment rate below 9 percent, the economists predict.
“The chairman got it about right,” Glenn Hutchins, co- founder and co-chief executive of Silver Lake, a private investment firm with $13 billion under management, said on a panel following Bernanke’s speech.
“We are experiencing stability both in financial markets and underlying corporate performance,” he said. “But the overwhelming sense of market participants right now is that we are at a very low level of activity.”
Before becoming a central banker, Bernanke, a former Princeton University economics professor, served on the National Bureau of Economic Research’s business-cycle dating committee, the group that determines the dates of U.S. recessions.
Stanford University Professor Robert Hall, the panel’s current chairman, said in August that declaring the recession over may take more than a year because of the risk that recent signs of stabilization will prove short-lived.
Sales at U.S. retailers rose 2.7 percent last month, led by a jump in auto purchases as consumers took advantage of the government’s “cash-for-clunkers” program. The increase exceeded the median forecast of economists surveyed by Bloomberg News and followed a 0.2 percent drop in July, Commerce Department figures showed today in Washington.
Responding to a separate question, Bernanke said he’s “pretty optimistic” on chances for an overhaul of financial regulations given a crisis that was “too big a calamity” to ignore. “I feel quite confident that a comprehensive reform will be forthcoming,” Bernanke said.
Congress is preparing the biggest overhaul of U.S. financial regulations since the 1930s, when the Fed was reorganized. The U.S. Treasury proposes to give the Fed greater authority over the capital, liquidity, and risk-management standards at the largest financial firms. Congressional leaders haven’t supported that proposal and are considering giving broader authority to a council of regulators.
“The problem we had in part was the lack of systemic oversight,” President Barack Obama said in an interview with Bloomberg News yesterday. “We want to have a systemic-risk regulator,” he said, adding that “the Fed is best equipped to do this.”