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By NYSSCPA.org E-zine Staff
Posted on 4/3/08
WASHINGTON -- Federal Reserve Chairman Ben Bernanke, in his most pessimistic and blunt assessment to date, said Wednesday that a "recession is possible" for the U.S. economy, CNN Money reported.
Bernanke, speaking before a congressional committee, said he wasn't yet prepared to declare that the economy has fallen into a recession. Instead, he said the economy is still "slightly growing at the moment," but he admitted it is possible the economy could shrink over the first half of this year, according to CNN Money.
His comments risk the effect of adding to the economic gloom. But they also won praise from some economists as necessary straight talk that could help his efforts to bring clarity to monetary policy. Many private-sector economists, who often define a recession as two straight quarters of economic contraction, have been saying for weeks that the U.S. is either on the verge of a recession or already in one, the Wall Street Journal reported.
Striking a more hopeful tone, he said he expects economic growth to pick up in the second half of the year and into 2009, helped by the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive interest rate reductions, the Associated Press reported.
''Much necessary economic and financial adjustment has already taken place,” Bernanke said, according to the Associated Press, and monetary and fiscal policies are in place that should “support a return to growth in the second half of this year and next year.''
One of the short-hand measures of whether a nation is suffering from a recession are two or more consecutive quarters in which GDP, the broad measure of economic activity, is negative. His statement seems to suggest that could have occurred in the recently completed first quarter and the second quarter that started Tuesday, CNN Money reported.
However, he made no suggestion that he thought it was yet necessary to resort to outright public intervention in the mortgage market, the Financial Times reported. But he urged Congress to focus on housing issues and promised to tell lawmakers if he believed additional action was needed.
Bernanke also said the Treasury plan to overhaul the regulation of the US financial system was an “interesting and useful first step,” according to the Financial Times.
Bernanke was also grilled by senators about the Fed's moves to aid Bear Stearns and about additional actions Congress and the White House should take to provide relief to struggling homeowners, according to the Associated Press.
The move brought criticism from Democrats and others who contend the Fed is bailing out Wall Street and putting billions of taxpayer dollars at potential risk. Bernanke defended the move as necessary to avert a meltdown in the entire financial system.
''It has never happened before, and I hope it never happens again,'' he told lawmakers, the Associated Press reported.
Senate housing plan
Separately, the Senate agreed upon terms of a package of legislation to help homeowners facing foreclosure, including new tax breaks intended to help stabilize the housing market, according to the New York Times.
The bill, expected to go to the Senate floor on Thursday, includes a two-year, $7,000 tax credit for buyers of properties facing foreclosure, a move aimed at stimulating the housing market and preventing vacancies that contribute to blighted neighborhoods.
Those who buy such a property but do not itemize deductions on their annual returns would receive a standard property tax deduction of $1,000 for couples and $500 for individuals, according to the Wall Street Journal.
The bill also reportedly includes $10 billion in tax-exempt bonds for local housing agencies to refinance subprime loans and provide new mortgages for first-time home buyers, $4 billion in grants for local governments to buy foreclosed properties and $100 million to expand counseling for homeowners at risk of defaulting on their loans, the Times said.
It would provide a new tax break for struggling home builders, allowing them to claim current losses against taxes paid in earlier, more profitable years, the Times reported.
The tentative deal comes as lawmakers have voiced, with increasing urgency, the need to extend a helping hand to individual homeowners caught in the turmoil of the mortgage industry and the overall downturn in the housing market, the Times said.
