US Federal Reserve Chairman Ben Bernanke pledged anew on Wednesday to do everything in his power to lift the US out of recession, while defending the extraordinary steps the Fed has taken to fight the worst credit and financial crisis since the 1930s.
“Recent economic statistics have been dismal, with many economies, including ours, having fallen into recession,” Bernanke said in remarks to the National Press Club in Washington. “In the United States, the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity as quickly as possible.”
In a separate report on Wednesday, the Fed sharply downgraded its projections for the US economy this year. Unemployment will rise to between 8.5 percent and 8.8 percent, the central bank said, from its current level of 7.6 percent.
The Fed also forecast that the economy would shrink between 0.5 percent and 1.3 percent this year, down from its mid-November estimate that the economy might decline 0.2 percent or grow 1.1 percent.
Unemployment would “go above 8 [percent] for sure” this year, Bernanke said, adding that the prospects for recovery depend on government policy.
Bernanke said the administration's efforts to rescue the financial sector to get credit flowing again are as important as the US$787 billion stimulus package signed into law by US President Barack Obama on Tuesday.
“If we can take strong and aggressive action ... we can break the back of this thing and we can begin to see improvements in 2009,” Bernanke said. “If we fail ... then the situation will continue to deteriorate.”
Elsewhere on Wednesday, another Fed official said the US economy likely would show signs of recovery this year, but warned that unemployment rates would probably rise further and the economic outlook will be similar to last year.
Sandra Pianalto, president of the Federal Reserve Bank in Cleveland, projected real GDP to decline sharply in the first half of this year, followed by a modest upturn in the second half.
“Unfortunately, I don't expect this to get better until we see stability returning into housing and financial markets,” Pianalto said in a speech to commercial developers in Columbus, Ohio.
Bernanke repeated a pledge made last week to keep Americans better informed about the Fed's efforts to ease credit and financial problems.
On that front, the central bank is developing a new Web site that will provide detailed information on its efforts. The Fed hopes to have the site operational in the coming days.
In another move to provide investors and analysts with better insights into the Fed's thinking about the economy, Bernanke said the central bank will start publishing longer-term projections on economic activity, unemployment and inflation beyond the three years now provided.