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Bernanke: US economy is in 'severe contraction'

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Bernanke: US economy is in 'severe contraction'

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US Federal Reserve Chairman Ben Bernanke is warning the recession in the world’s largest economy could last beyond the end of this year unless Washington succeeds in restoring financial stability.

He spoke as US consumer confidence plunged to another record low in February. A survey by the industry group The Conference Board found more Americans expecting economic conditions to continue weakening, along with the jobs market. Bernanke told a Congressional committee the fast-shrinking US economy is at risk from a mutually reinforcing cycle of weak growth and strain on financial markets: “The US economy is undergoing a severe contraction; employment has fallen steeply since last autumn and the unemployment rate has moved up to 7.6%. the deteriorating job market, considerable losses of equity and housing wealth, and tight lending conditions have weighed down on consumer sentiment and spending.” Bernanke noted that a Fed program to buy mortgage finance agency debt and mortgage-backed securities has helped cut mortgage rates, but he said nothing on what further steps might be taken to shore up the US banking system. More than two years after the US property bubble began to implode, prices of single-family homes there plunged 18.5 percent in December from a year earlier. That was the latest in a series of record declines.