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Published:May 6th, 2009 08:21 EST
Federal Reserve Chairman Ben Bernanke

Federal Reserve Expects Economic Rebound Later In 2009

By Christopher HIllenbrand

Ben Bernanke, chairman for the Federal Reserve, expressed optimism before Congress on Tuesday when he said the economy should rebound and begin to show signs of new growth by later 2009.

Speaking to Congress` Joint Economic Committee, Bernanke later clarified that while the recession may begin to turn around, don`t count on seeing economic returns to immediately resemble figures prior to the economic burst. During his testimony, he said businesses will remain leery on hiring new employees or maintaining current workers, indicating that the nation`s jobless rate may peak yet again, inciting "further sizable job losses" in the next several months.

Ben Bernanke addressing concerns

Unemployment rates have been skyrocketing all across the country especially with the collapse of many localized job markets and prominent U.S. businesses, not to mention since the recession began in December 2007. To date, the recession has absconded with a net estimate of 5.1 million jobs nationwide. The chairman affirmed that the nation`s jobless rate "could remain high for a time, even after economic growth resumes."

The Federal Reserve head disagreed with leading experts on the economy who believe that the average unemployment rate will reach 10 percent by the end of 2009. Bernanke believes the figure might be "somewhere" the range of nine percent.

"The loss of jobs is one of the most distressing aspects of this whole episode," the chairman said.

Shortly after explaining the dubious horizon for the U.S., the Federal Reserve official voiced a rather chipper outlook toward the economy`s progress nearing the end of the year.

"We continue to expect economic activity to bottom out, then to turn up later this year," he stated to legislators. "We expect that the recovery will only gradually gain momentum." Current research shows that the recession is letting up in severity, subsequently backing up his bright prognosis for the economy, Bernanke said.

"The pace of contraction may be slowing," Bernanke said, echoing his comments from last week, describing his decision in not infusing any more resources into thwarting the recession.

After undergoing three years of lagging house sales, the U.S. housing market is exhibiting signs suggesting it may be bottoming out, the chief said. As another positive note toward Bernanke`s prediction, consumer spending was up during the first quarter of the year, reversing a disastrous sales slump for the second half of 2008.

President Barack Obama`s tax cuts, part of the encompassing $787 billion economic bailout, being distributed in the coming months, should cause further resurgence in consumer spending according to economists. But the factors of unemployment, declining home values across the nation, and evaporated retirement funds may make consumers skeptical of investing money back into the economy, as Bernanke speculated.

Weighing heavily on his reputation among American lawmakers, Bernanke failed to speed up the application of the new guidelines directed toward protecting Americans from unscrupulous credit card practices. By the recent decision to defend consumers` rights, the rules will go into effect in July 2010.

Democrats have scolded the Fed`s decision for perpetuating the same unsavory political stagnation that saturated the last administration`s decision-making abilities.

Rep. Elijah Cummings, Democrat from Maryland, spoke on behalf of the Americans hardest hit by the recession that feel overlooked while big business is being salvaged from complete bankruptcy by taxpayer dollars.

"Hey, we`re on fire, too. What about us," he said.

Sen. Charles Schumer, Democrat from New York, deemed Bernanke`s decision "unconscionable."

A sign suggesting the worst of the recession is over, as reported by the Supply Management on Tuesday, includes a lessening decline in last month`s activity in the services sector. The institute`s service sector index, used to measure the growth and decay of industry numbers, was rated at 43.7 in April, compared to 40.8 for the month of March. Any rating under 50 is regarded as a contraction in the services sector, where the majority of American workers are employed.

Federal Reserve officials also released the April figures on the state of business investment and commercial real estate, being described as "extremely weak" and "poor" respectively.

The latest market studies address a significant drop in factory production, Bernanke told Committee members.

Even so, the Fed`s chief punctuated a widely-held hope that the manufacturing and industrial sectors will post gains later in the year as production increases where it once was cut back to save on company costs. And economists around the globe have indicated similar optimism as their countries are experiencing moderate economic upturns, which may aid in boosting the U.S. exports market.

Analysts in the private sector speculate the economy won`t wane to the extent of the last quarterly figures, which varied from anywhere between one and three percent, in the second quarter. Many predict that once the results from President Obama`s stimulus package, mainly consisting of unprecedented government spending and tax decreases, affect the United States, the economy could start to improve by the third or fourth quarter this year.

The economy shrunk 6 percent in the last three-month period for 2008 and for the first quarter of 2009: the worst drop recorded since the late 1950s.

Experts forecasted that the unemployment rate, which rose to a new record high of 8.5 percent in over 25 years, will jump yet again to around 8.9 percent in April as businesses begin scaling back jobs in response to revenue lows, according to the Federal report that will be officially released on Friday.

Bernanke cited that the financial systems have shown hints toward amending the recent credit crises, as some of the lending burdens have been eased throughout the entire sector. But these betterments are tentative at best, given the still amounting debts within the industry.

"A relapse.. would be a significant drag on economic activity and could cause the incipient recovery to stall," Bernanke said

Bernanke has maintained that the Federal Reserve`s predictions are contingent on the government stepping in to mend the ailing financial markets.

The Fed didn`t reveal how 19 of the largest banks in the country scored on the recent financial "stress tests." The tests` findings, to be published on Thursday, may provide insight into which institutions may require more federal aid should the recession fall any further.

As a corollary to the governments tests, Bernanke asserted that banks will be forced to promote "comprehensive capital plans for establishing the required buffers" to defend against potential losses in the future. A timetable has been set for six months, during which banks must comply with the ordinance or receive help to do so from the federal government.

He suggested that banks can reach that goal through "significant opportunities for capital raising outside government programs", which entail the sales of assets as well as other cost-cutting methods.

The International Monetary Fund pinpointed that another $275 billion worth of capital will be required to soften the recession`s blow to U.S. banks. Bernanke refuted the IMF`s figure saying they overestimated the necessary funds for further government intervention.

Legislators have questioned the transparency of the Fed`s practices concerning the government`s exact expenditures in lending and in the bailout plan. In response to the lawmakers` scrutiny, the Federal Reserve has announced they will begin disclosing all the information regarding the number of borrowers under specific credit plans, the amounts of credit provided and the source for collateral each borrower puts up for loans. But the chairman neglected to address whether or not the Reserve will publicize the identity of borrowers, which some lawmakers have called for since the policy was brought before Capitol Hill.