- The Washington Times - Tuesday, May 5, 2009

UPDATED:

Federal Reserve Chairman Ben Bernanke on Tuesday cautioned against expecting a sharp improvement in the U.S. economy later this year, saying the recovery is likely to be gradual and that unemployment will continue to remain high.

“We expect economic activity to bottom out, then to turn up later this year,” he said before Congress’ Joint Economic Committee. “Businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes.”

Strains in the banking system and credit markets also remain significant and could derail the recovery, Mr. Bernanke said.

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He said major indicators show the U.S. economy is improving but “substantial concerns” remain about the banking system.

Mr. Bernanke also made his first public comments about the federal government’s so-called “stress tests” on the country’s 19 largest financial institutions.

He said the finding, which are scheduled for release Thursday, will require banks to make sure they have sufficient capital to weather a prolonged or more severe recession and that they will have six months to present a plan to create such buffers.

The federal government has already loaned trillion of dollars to banks to help them begin lending again, but Mr. Bernanke said additional money is still available.

The Treasury Department has roughly $101 billion remaining in bailout funds. Mr. Bernanke said the Obama administration “does not think there will be a near-term need” for additional money.

Among the major indicators cited by Mr. Bernanke was first-quarter earning reports by banks that were better than expected, the recent increase in consumer spending and upbeat housing-industry numbers — including 30-year fixed mortgages rates that are now around 4.8 percent.

He said the release of the findings were delayed because of the “extensive and detailed” effort of examining bank records and because bank executives were allowed to review the reports for mistakes, but “not to negotiate.”

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