Bernanke draws grim picture of economy

25 February 2009

The US economy is likely to worsen significantly over the next year, said Ben S Bernanke, the Federal Reserve chairman, in his testimony at the Senate Banking, Housing and Urban Affairs Committee in Washington on Tuesday.

However he assured the committee that although the economy was suffering through a 'severe contraction' and could get even worse than recent forecasts, the Federal Reserve would take all necessary steps to thaw the credit markets.

He urged support for the significant fiscal and monetary measures adopted by the Obama administration to revive the sagging credit market.

''If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability - and only if that is the case, in my view - there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,'' Bernanke said.

"If there is one message that I'd like to leave you with, if we're going to have a strong recovery, it has got to be on the back of a stabilisation of the financial system. It is black and white," Bernanke said in his first biannual report to both houses of Congress on the state of the economy.

The top US central banker said the Obama administration was following the right track in stimulating the economy. He expressed his hope that the stimulus package should work, though it may take some time.