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Glimmers of Economic Hope Emerge, But Tough Road May Remain

Federal Reserve Chairman Ben Bernanke told lawmakers Tuesday that the economy should pull out of a recession and start growing again later this year. Financial analysts assess where the economy stands and how new job numbers may impact the picture.

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    First, the economy. The head of the Federal Reserve sounded a note of cautious optimism today about brightening prospects for a recovery. NewsHour correspondent Kwame Holman reports.


    The economy could begin to turn around before the year is out; that's what Fed Chairman Ben Bernanke told members of a House Senate economic panel.

    BEN BERNANKE, Federal Reserve chairman: We continue to expect economic activity to bottom out, then to turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.

    The recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, maybe be stabilizing.


    And today, another sign: a closely watched survey reported activity in hotels, hospitals, and other service industries fell again in March, but at a much slower pace.

    Expectations of better times already have lifted Wall Street from its low point, but Bernanke cautioned the economy's climb back still includes further sizable job losses.


    Even after a recovery gets underway, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while.

    We think that the unemployment rate will probably peak early in 2010 and then come down relatively slowly after that.


    The jobless rate currently stands at 8.5 percent. Bernanke said he does not think it will get to double digits.

    The Fed chairman also spent time here before the Joint Economic Committee addressing those bank stress tests. Results are due out Thursday, and there have been reports that 10 of the 19 banks may need more capital. Committee members wanted to know where that money would come from.


    While banks have certainly sustained substantial losses both the last few years and going forward, they have also taken significant write-downs. They have reserved. And there is substantial earning capacity.

    If the banks cannot meet those standards in the private market, which is our strong preference, then they have to take government capital to meet those standards.


    The chairman went on to say there's been a lot of progress in stabilizing the financial system, and he credited federal action.


    We're in far better shape today than we were in September and October. And while I know there are many critics of the TARP — and I understand the criticisms, and there are many issues — I do believe the availability of that capital helped us dodge what would have been a truly cataclysmic collapse of the global banking system.


    Bernanke went from the hearing to a private lunch with Republican senators, but some of them voiced doubts about what they heard.


    A lot of the things he said about their assumptions in the economy sounded a little more like kind of a rosy scenario to a lot of us. So whether that kind of a recovery is going to happen or not, I think, is a big question.


    The nation's top two leaders used their lunchtime today to make a symbolic gesture toward small business.


    All right. I'm going to have just your basic cheddar cheeseburger.


    President Obama and Vice President Biden traveled to a burger shop across the Potomac River in Virginia. They ate there and took more food back for White House staffers.

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