Bernanke: Sees Recession Ending This Year

In the prepared remarks of Federal Reserve chairman Ben Bernanke's "Semiannual Monetary Policy Report to the Congress" given before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, Washington, D.C. and broadcast mostly live on CNBC today, he said the recession should end this year. Bernanke said this will require restoring financial stability.

The central tendency of their most recent projections for real GDP implies a decline of 1/2 percent to 1-1/4 percent over the four quarters of 2009. These projections reflect an expected significant contraction in the first half of this year combined with an anticipated gradual resumption of growth in the second half.

Bernanke said we need fiscal stimulus:

To break the adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilize financial institutions and financial markets.

Bernanke said the recession could end in 2009 with 2010 a recovery year:

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.

but he expects a FULL RECOVERY to take more than two years:

The central tendency for the participants' estimates of the longer-run growth rate of real GDP is 2-1/2 percent to 2-3/4 percent; the central tendency for the longer-run rate of unemployment is 4-3/4 percent to 5 percent; and the central tendency for the longer-run rate of inflation is 1-3/4 percent to 2 percent, with the majority of participants looking for 2 percent inflation in the long run. These values are all notably different from the central tendencies of the projections for 2010 and 2011, reflecting the view of policymakers that a full recovery of the economy from the current recession is likely to take more than two or three years.

Read the full text of Bernanke's Testimony here.

During the Q&A, my favorite line was Bernanke explaining why we should help others having trouble paying their mortgages, a policy that "rewards bad behavior."

"I fully understand the sentiment. A lot of this goes against American values of self reliance and responsibility... I would give the following example. If your neighbor smokes in bed and sets his house a fire. And you live in a neighborhood of closely packed wooden houses. You could punish him very severely by refusing to send the fire department and then he would probably learn his lesson about smoking in bed. But, unfortunately, in the process you would have the entire neighborhood burning down.

The question was partially in response to Rick Santelli's "Chicago Tea Party in July" Rant video that led to a flood of letters to congress protesting efforts to reduce what people owe who signed legal contracts with banks, often after lying about their income to qualify for the mortgage.

Comments

[Mad Hedge F...:]

The forecasting firm Macroeconomic Advisors says that we are going through the “epicenter” of the recession right now. They see Q4 GDP being revised down from -3.8% to -6.0%, and that Q1 will come in at -5%. These numbers fall somewhere in between the 1974 recession and the Great Depression in terms of their severity, and are double the worst case scenario offered only three months ago. A tsunami of infrastructure spending, stimulus, and newly recapitalized bank lending will bring positive growth of 2% in the second half. Lower interest rates are slowing down the home foreclosure rate. Many states and municipalities, like Denver, started shovel ready projects the very second that Obama signed the stimulus bill, but it will take months to see the impact on the data. In layman’s terms, thing are about to get a lot worse, then a lot better pretty quickly, giving us a classic “V” type bottom for the economy.

Feb 24 05:11 PM

[arganx:]

Whatever you and Bernanke are smoking, please continue to do so. I'm sure it makes you feel good. Actually, its nice to hear some positive news, even if I don't believe it.

Feb 24 05:24 PM

[Jason Rines...:]

My assumptions were more accurate then Bernanke's from August of 2007 to current. He is either outright lying or very incompetent. Take your pick. Here's another assumption and again, I hope I am very wrong. There is no vanity joy in this kind of human suffering: 2010 does mark a return to some confidence and larger bear rally. Then as runaway inflation kicks in (energy and trickle downs) the consumer confidence is again crushed and we head back down to new lows. In 2012, voter revolution occurs like in other similar depressionary eras and 2013 marks the formation of the next sustainable Bull. It will be tepid in growth compared to the 80's and 90's as the U.S. continues paying down it's debts, growth hampered by higher interest rates and citizens are taxed to new levels to pay for the now expanded entitlement society now bordering on Fascism.

Feb 24 08:00 PM

[chennian:]

Bernake has been smoking a lot since 2007. Smoking is hashardous to health, please remember.

Feb 24 08:24 PM

[Dave Wrixon:]

Somebody take him and get his eyes checked. He couldn't walk down Wall Street without knocking himself out on a lamp post!

Feb 25 12:58 AM

[Dave Wrixon:]

Well, they got the first bit right, but I don't buy the V shaped recession.

There might be a significant Stimulus bounce, but Obama is promising to take a lot of cash out of the economy to pay off debt, so it is not clear how sustainable that recovery is likely to be. Many will not be in a mood to go out and spend on cars or housing for sometime. If Americans go into saving mode that behavior will last for sometime. If they don't then nothing will have been learnt and the hole will just get deeper.


On Feb 24 05:11 PM The Mad Hedge Fund Trader wrote:

> The forecasting firm Macroeconomic Advisors says that we are going
> through the “epicenter” of the recession right now. They see Q4 GDP
> being revised down from -3.8% to -6.0%, and that Q1 will come in
> at -5%. These numbers fall somewhere in between the 1974 recession
> and the Great Depression in terms of their severity, and are double
> the worst case scenario offered only three months ago. A tsunami
> of infrastructure spending, stimulus, and newly recapitalized bank
> lending will bring positive growth of 2% in the second half. Lower
> interest rates are slowing down the home foreclosure rate. Many states
> and municipalities, like Denver, started shovel ready projects the
> very second that Obama signed the stimulus bill, but it will take
> months to see the impact on the data. In layman’s terms, thing are
> about to get a lot worse, then a lot better pretty quickly, giving
> us a classic “V” type bottom for the economy.

Feb 25 01:04 AM

[kelm:]

What Bernanke sees must be viewed in context of what Bernanke hasn't seen. Looked at in that manner he is culpable for the current crisis, failed to see it coming, continued the failed policies of Greenspan the vain and contributed greatly to our present situation. He should be removed from his position (and Geithner should never have been given his).

These predictions are more hope cast in caveats than anything you should buy or sell on.

Feb 25 11:10 AM

[hpcooperjon:]

Bernanks is in to positing, which means pointing out possible good things happening, the psychology warm and fuzzy for the people thing. Raising peoples expectations and encouraging positive thinking which hopefully actually produces the ends one hopes for. (along with 2 trillion dollars) of debt for our grandchildren to pay.

Feb 26 02:16 AM