Federal Reserve Chairman Ben Bernanke on Friday offered his most optimistic outlook since the financial crisis struck, saying the economy is on the verge of growing again.
Speaking at an annual Fed conference, Bernanke acknowledged no missteps by the central bank in managing the worst crisis since the Great Depression. But he conceded that consumers and businesses are still having trouble getting loans, even though the financial system is gradually stabilizing.
Economic activity in both the U.S. and around the world seems to
be leveling out, and the economy is likely to start growing again
soon, Bernanke said in a speech at an annual Fed conference in
Jackson Hole, Wyo.
The mood here was decidedly more hopeful than it was last
summer, when a sense of foreboding hung over the forum just before
the financial crisis erupted.
Bernanke's hopeful remarks on the economy contributed to a rally
on Wall Street. The Dow Jones industrial average surged about 155
points, or 1.7 percent, and broader stock averages also gained
Despite his upbeat tone, Bernanke cautioned that the recovery is
likely to be "relatively slow at first."
Unemployment, now at 9.4 percent, is widely expected to hit
double digits later this year and to remain high for many months.
The financial markets have stabilized, and some businesses and
consumers have found it easier to get loans. Still, the banking
system has yet to return to normal, Bernanke said.
Financial institutions face further losses on soured
investments. And many businesses and households still can't get the
credit they need to fuel the economy, he said.
"Although we have avoided the worst, difficult challenges still
lie ahead," Bernanke told the gathering of fellow bankers,
academics and economists. "We must work together to build on the
gains already made to secure a sustained economic recovery."
Reviewing the past year's crisis, Bernanke outlined the many
emergency measures the Fed and other regulators took to help ward
off a global financial meltdown. He declined to acknowledge
critics' arguments that regulators failed to detect signs of the
crisis before it occurred - or that Wall Street bailouts sent a
message that big companies that make reckless bets would be rescued
with taxpayer money.
A $700 billion taxpayer-funded bailout program to prop up
financial institutions incensed many Americans. So did the repeated
bailouts of AIG, which paid hefty bonuses to employees who worked
in the division that brought down the firm.
Some analysts said Bernanke appeared to be angling to keep his
job for another term.
"The lack of any mea culpa suggests the Fed chairman wants to
be reappointed," said Richard Yamarone, economist at Argus
Research. "When you go on an interview, you never speak of your
President Barack Obama will have to decide in coming months
whether to reappoint or replace Bernanke, whose term expires early
Ken Mayland, president of ClearView Economics, said Bernanke was
engaging in a "bit of cheerleading to inspire confidence,"
especially among consumers whose caution could restrain the
Elsewhere at the conference, European Central Bank President
Jean-Claude Trichet responded to a research paper on the origins
and the nature of the financial crisis by saying he was a "little
bit uneasy" about talk of a return to normalcy.
"We have an enormous amount of work to do, and we should be as
active as possible," Trichet said.
The bulk of Bernanke's speech chronicled the extraordinary
events of the past year.
Financial markets took a dizzying plunge starting in September
and into October, nearly shutting down the flow of credit. The
crisis felled storied Wall Street firms. The government took over
mortgage giants Fannie Mae and Freddie Mac, as well as insurance
titan American International Group Inc.
Lehman Brothers failed. It filed for bankruptcy on Sept. 15, the
largest in corporate history, roiling markets worldwide.
The Fed swooped in with unprecedented emergency lending programs
to fight the crisis. It eventually slashed a key bank lending rate
to a record low near zero. And Congress enacted programs to
stimulate the economy, including a $787 billion package of tax cuts
and increased government spending.
"Without these speedy and forceful actions, last October's
panic would likely have continued to intensify, more major firms
would have failed and the entire global financial system would have
been at serious risk," Bernanke said.
Unlike in the 1930s, Washington policymakers this time acted
aggressively and quickly to contain the crisis, said Bernanke, a
scholar of the Great Depression.
"As severe as the economic impact has been, however, the
outcome could have been decidedly worse," he said.
Global cooperation in battling the crisis was crucial, with
central banks slashing interest rates and the U.S. and other
governments delivering fiscal stimulus, he noted.
"The crisis, in turn, sparked a deep global recession, from
which we are only now beginning to emerge," the Fed chief
The conference, sponsored by the Federal Reserve Bank of Kansas
City, draws a virtual who's who of the financial world - Bernanke's
counterparts in other countries, academics and economists. This
year's forum focused on lessons learned from the crisis and how
they can be applied to prevent a repeat of the debacles.
Bernanke again urged a rewrite of U.S. financial regulations,
something Congress is involved in. He repeated his call for
stricter oversight of companies - such as AIG - whose failure would
endanger the entire financial system and the broader economy. Obama
wants to empower the Fed for that duty, something many lawmakers
Bernanke also said the U.S. needs a process to wind down
globally interconnected companies, as the Federal Deposit Insurance
Corp. does for failing banks.
A strengthening of financial regulation is needed, he said, "to
ensure that the enormous costs of the past two years will not be