Did Bernanke say the recession will end this year or not?

“The headline for the Wall Street Journal News Alert Tuesday morning reads "Bernanke Says Recession Should End This Year."

But the text of the message, summarizing the news from the Federal Reserve Chairman's testimony before the Senate Banking, Housing, and Urban Affairs Committee Tuesday morning adds a big "if":

"2010 'will be a year of recovery,' if actions taken by the government lead to some stabilization in financial markets."

And the actual text of his prepared remarks reveals further qualification: (Bold mine.)

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.

That's not just a big "if." That's a giant, honking, humongous, get-down-on-your-knees-and-pray-for-salvation "if." Ben Bernanke predicts that we can hope for an economic recovery next year, only if government action is effective -- and that includes, in his view, Treasury Secretary Tim Geithner's plan to bring stability to the banking system, the details of which are still unknown.

In the full context of his remarks, Bernanke doesn't sound all that optimistic. (Bold mine.)

This outlook for economic activity is subject to considerable uncertainty, and I believe that, overall, the downside risks probably outweigh those on the upside. One risk arises from the global nature of the slowdown, which could adversely affect U.S. exports and financial conditions to an even greater degree than currently expected. Another risk derives from the destructive power of the so-called adverse feedback loop, in which weakening economic and financial conditions become mutually reinforcing. To break the adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilize financial institutions and financial markets.

So let's retitle that WSJ News Alert: "Bernanke Warns That Without Aggressive FDR-Style Strong Government Action to Boost the Economy, We're Doomed."”

Andrew Leonard, “Ben Bernanke makes the case for strong government”, Salon.com (24 February 2009).

http://www.salon.com/tech/htww/2009/02/24/bernanke_and_economy/index.html


Andrew Leonard is a senior technology writer for Salon.com and a contributing writer for Wired Magazine.

My headline would have been “Bernanke says recovery possible next year but downside risks predominate”.

The written remarks by the Fed Chief provide an overview of recent developments and the steps that have been taken to counter the severe contraction the U.S. economy is now experiencing. The text also provides some cheerleading remarks about questions Congress has had about the transparency of decision making at the Fed. It ends with a review of the recent revisions made to the Fed’s economic outlook and its projections, pointing out that they have been revised substantially downward since the last set were released in October.

It is to be noted that there is nothing in the prepared remarks that associates the Fed with the policies of the Treasury or the Administration nor is there anything that indicates that the Fed believes these policies will necessarily be successful. Part of this is no doubt the traditional independence and “stand-offishness” of the Fed, which does not wish to be identified with the policies of any Administration. But I think it also expresses the fact that we still do not know exactly what the Administration proposes to do in the area of reforming and restructuring the financial system. Even in the area of spending, it is not clear what the Administration wants to do or how it intends to actually implement the spending that has been approved. Given all these uncertainties, Bernanke is right: Everything about the prospects before the economy depend on a great big “if”, and, if truth be told, we don’t even know what that the actions behind that “if” is.

A "Thank you" to Mark Thoma of Economist’s View for the pointer.