Fed. Chairman Ben Bernanke Sees Recession & Recovery
Wednesday, April 02, 2008SUSIE GHARIB: Ben Bernanke said today that a U.S. recession is possible. The chairman of the Federal Reserve acknowledged that scenario for the first time as he addressed a congressional committee on Capitol Hill. Bernanke told lawmakers that the economy has worsened since January, adding it continues to grow, but only slightly. As Washington bureau chief Darren Gersh reports, while Bernanke seemed more pessimistic about the short-term outlook for the economy, he remains upbeat about the long-term prospects.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was the closest some economists say they have ever heard a Fed chairman get to actually declaring the "R" word. Ben Bernanke told the Joint Economic Committee that a recession is possible, later adding...
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: It's possible -- not certain, but possible that the first half of this year will be slightly contractionary. That doesn't necessarily mean there's a recession, because it will depend on the circumstances.
GERSH: True, but six months of economic contraction is the short-hand definition of a recession. Economist William Spriggs says, while Bernanke is careful with his words, the Fed chairman still understands the risks.
WILLIAM SPRIGGS, PROFESSOR OF ECONOMICS, HOWARD UNIVERSITY: The extraordinary steps he has taken show, whether he says the "R" word or not, that he is fearful of the economy sliding. He understands the fragility of where we are, not just in terms of the financial markets, but how that feeds into what we call the real economy.
GERSH: In his testimony today, Bernanke was noticeably more concerned big banks are cutting back on lending as they shore up their tattered balance sheets.
BERNANKE: Our financial institutions are hunkered down. They're not making loans at the normal rate and that's having real effects on small business, on mortgages, on all aspects of our economy.
GERSH: There were many pointed, but polite, questions about the Fed's rescue of Bear Stearns. New York Senator Charles Schumer asked whether help given to Wall Street should now be extended to struggling homeowners on Main Street.
SEN. CHARLES SCHUMER, (D) NEW YORK: Isn't it just as appropriate to do it in the housing market? Because that also presents, as a whole, presents systemic risk issues. That's the dichotomy many of us are troubled about.
GERSH: No question Bernanke said the housing market is the crux of the economic outlook, but he left it to Congress to weigh the pros and cons of any aid package for homeowners. As for the dichotomy, the chairman took issue with those who say the Fed cut a sweet deal for Wall Street.
BERNANKE: We did not bail out Bear Stearns. Bear Stearns shareholders took a very significant loss -- an 85-year-old company lost its independence and became acquired by another firm. Many Bear Stearns employees, as you know, are concerned about their jobs. I don't think any company is interested in repeating the experience of Bear Stearns.
GERSH: On the whole, as Fed watcher Vince Reinhart put it, Bernanke sounded like a man who can see the bottom. The Fed chairman argued much of the needed economic correction has already taken place. While the risk is to the downside, Bernanke expects growth to pick up in just a few more months. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
