"After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," thanks to the fact that "policymakers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation." These encouraging remarks were made on Friday by Federal Reserve Chairman Ben S. Bernanke at an annual meet of central bankers from around the world in Jackson Hole, Wyoming.
Bernanke's lunchtime speech in the western resort, coupled with figures released the same day pointing to a 7.2% rise in U.S. home sales in July, sent shares on Wall Street to their highest levels this year and pushed up European stock exchanges by more than 3%.
"After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," Bernanke told attendees of the Federal Reserve Bank of Kansas City's Annual Economic Symposium. The gathering at the Wyoming resort town included heads of many of the world's central banks.
"Since we last met here, the world has been through the most severe financial crisis since the Great Depression," Bernanke said in his concluding remarks. "The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge. As severe as the economic impact has been, however, the outcome could have been decidedly worse. Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal, and financial policies around the world have been aggressive and complementary. Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk. We cannot know for sure what the economic effects of these events would have been, but what we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted."
While commending the effects of the actions taken by governments and central banks around the world, Bernanke sounded a cautionary note, too. "Although we have avoided the worst, difficult challenges still lie ahead," he noted.
"Strains persist in many financial markets across the globe, financial institutions face significant additional losses and many businesses and households continue to experience considerable difficulty gaining access to credit," he told his colleagues. "Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."
Earlier this month the Organization for Economic Cooperation and Development released figures showing strong signs of improvement in the world's major economies and signs that the downturn in the United States, Britain, Germany and Canada has found a trough. The economies of China and India may also have hit the bottom, the OECD said, and there are tentative signals that the lowest point before recovery may also have been reached in Brazil and Russia.
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