On Tuesday Federal Reserve Chairman Ben Bernanke said the recession may be easing and the sharp decline in the economic activity may be on the decline due to the ‘tentative signs’ that are present.
Bernanke also warned that conventional monetary policy alone is not sufficient to provide the economy with all the support it needs and added by saying the Federal Reserve will continue to take the necessary steps to unclog the credit markets and strengthen the economy.
“We will also continue to work closely with other agencies, such as the Treasury and the Federal Deposit Insurance Corporation (FDIC), each of which has also taken a variety of actions to help stabilize financial markets, as well as with other central banks around the world”, he said during a speech at Morehouse College in Atlanta.
The Fed chief made particular mention to the recent data on home sales, auto sales, home building and consumer spending as flickering signs of encouragement.
Following his speech, in a question and answer session, Bernanke acknowledged that the job market for graduates is the most difficult in 25 years. He encouraged graduates by saying that the country is in need of smart hardworking people, especially in the business sector and urged students not to base their career decisions on financial compensation but rather on what they enjoy and what they regard as valuable to the society.
He described the current financial crisis as “the worst since the Great Depression”, severely impacting the cost and availability of credit to both households and businesses
Referring to the current economic crisis, Bernanke said it is clear that some of the compensation and some of the risk-taking was excessive in the financial community. There will be a more vigilant regulatory environment going forward, he added.
To revive the economy, the Fed has cut a key bank lending rate to a record low of near zero and has rolled out a number of radical programs to spur lending to Americans, a key ingredient to turning around the economy.
On that front, the Fed recently plowed $1.2 trillion into the economy in an attempt to reduce interest rates for mortgages and other loans. The Fed, meanwhile, also is considering expanding a program to jump-start consumer lending, Bernanke said.
According to analyst predictions the economy is expected to shrink in the second quarter of 2009, but to a much lesser extent as that of in the past. A predicted shrinkage of between 2 and 2.5 percent is expected.
The final quarter of 2008 saw the economy shrink 6.3 percent, the worst in more than a quarter century.