Federal Reserve chairman Ben Bernanke said Wednesday that a recovery from the financial crisis "will not happen right away" but that the US economy will eventually emerge "with renewed vigor."
Speaking to the Economic Club of New York, the Fed chairman said that the problems in the economy and markets "are large and complex, but in my judgement, our government now has the tools it needs to confront and solve them."
Bernanke said the crisis "has many novel aspects" stemming from the globalization of markets and quick movements of money and information but that "the current situation also has much in common with past experiences."
The Fed chairman did not use the term recession, as mentioned by San Francisco Fed president Janet Yellen on Tuesday, but he suggested the economy would remain weak for some time.
The main problem, Bernanke said, is "a loss of confidence" in markets and financial institutions.
The massive 700-billion-dollar rescue approved by US lawmakers and similar measures in other countries will go a long way toward steadying markets, he said.
"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," Bernanke said.
"Economic activity had been decelerating even before the recent intensification of the crisis. The housing market continues to be a primary source of weakness in the real economy as well as in the financial markets, and we have seen marked slowdown in consumer spending, business investment and the labor market. Credit markets will take some time to unfreeze."
Bernanke added that the overall recovery "will depend greatly on the extent to which financial and credit markets return to more normal functioning."
Yellen said Tuesday that the US economy was likely to see "essentially no growth" in the third quarter and that that the fourth quarter "appears to be weaker yet, with an outright contraction quite likely."
"Indeed, the US economy appears to be in a recession," Yellen said.
Bernanke meanwhile expressed confidence in the longer-term outlook once the credit and banking problems are fixed.
"I strongly believe that we now have the tools we need to respond with the necessary force to these challenges," he said.
"Although much work remains and more difficulties surely lie ahead, I remain confident that the American economy, with its great intrinsic vitality and aided by the measures now available, will emerge from this period with renewed vigor."
Copyright 2008 AFP Global Edition
