Bernanke: Recovery will take years

Federal Reserve chief says full recovery from this recession will take more than two or three years; downplays talk of bank nationalization.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Chris Isidore, CNNMoney.com senior writer

Photos
We're doing just fine! 9 stories
Despite a deluge of bleak economic news, these nine people are staying optimistic and finding success.
When will the economy begin to turn around?
  • Later this year
  • Early next year
  • Late in 2010
  • In 2011 or after

NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke said he's hoping the recession could end later this year, but he cautioned that a full economic recovery will take "more than two or three years."

Bernanke, speaking in front of the Senate Banking Committee Tuesday, also downplayed talk that the government might have to nationalize some of the country's most troubled banks.

In his prepared remarks, Bernanke said an economic turnaround will only occur "if actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability." He also acknowledged the recovery might not go as well as hoped.

"This outlook for economic activity is subject to considerable uncertainty, and I believe that, overall, the downside risks probably outweigh those on the upside," he said.

In response to a question about bank nationalization, Bernanke dismissed the idea that the government would need to take over banks such as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500).

"We don't need majority ownership to work with the banks," he said. "We can work with them now to do whatever is necessary to get rid of bad assets. I don't see any reason to destroy the franchise value. It just isn't necessary."

Plunges in the stock prices of Citi, BofA and other banks has raised questions about whether the government would need to take control of struggling financial firms.

Bernanke would not estimate how much more money the government may need to invest in banks to stabilize the financial sector.

"How much more we'll have to do will depend on the state of the banks, how the economy evolves and how much margin of safety we want," he said.

But Senators Richard Shelby, R- Ala. and Bob Corker, R-TN, suggested that proposals to have the Treasury Department pump additional capital into major banks for shares that can be converted into common stock was essentially a form of nationalization since Treasury would have control over so much of the banks' outstanding shares.

Bernanke also did not give any further details about when the Fed may start to buy long-term Treasury bonds, something the central bank has hinted it may start doing.

But he said that "strong government action," in addition to the financial stimulus package recently passed by Congress, is needed to fix banking and the overall economy.

Bernanke added that no matter what the Fed and Treasury Department do to address the problems in the housing market, home prices and sales will not start to rebound until there's a broader recovery in the economy and job market.

"People are not likely to buy houses when they are unsure about their jobs," he said.

Bernanke said he shared the concerns of some senators about the huge deficits being run up as part of the current economic rescue efforts. But he also said with the current state of the economy, this is not the time to be focused on balancing the budget.

Bernanke gave this forecast as part of his semi-annual update to Congress about the nation's economic condition.

Have you found a job recently? We want to hear from you. Send us an email and attach a photo. Tell us where you got hired and how you landed the job and you could be profiled in an upcoming story on CNNMoney.com.  To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.