US PRESIDENT Barack Obama and Federal Reserve chairman Ben Bernanke yesterday voiced wary optimism that the US economy is no longer in freefall, even as new data showed retail sales fell in March.
In a speech at Georgetown University, Mr Obama reiterated that he detected “glimmers of hope” in the economy. He said the $787 billion stimulus, the $700 billion bank recapitalisation programme, $70 billion housing plan and extra federal aid to Detroit car companies were “starting to generate signs of economic progress”.
Meanwhile, Mr Bernanke said: “We have seen tentative signs that the sharp decline in economic activity may be slowing.” He added that “a levelling out of economic activity is the first step toward recovery” although he did not say when he thought this levelling out would take place.
The comments by Mr Obama and Mr Bernanke underscore a shift in US official rhetoric, with policymakers now prepared to draw attention to the slowing in the rate of economic decline.
In a speech late last week, Lawrence Summers, director of the National Economic Council, said the “sense of freefall” will be over within the next few months.
However, while top officials in both the US administration and central bank think the economy will probably bottom out in the second half of this year, they remain wary of calling the turn in the economic cycle. They regard recent signs of green shoots as hopeful but far from definitive, and do not want to undermine support for continued extreme fiscal and monetary measures that may still be needed to support growth.
March retail sales figures released yesterday raised questions as to whether US consumer spending has yet found a floor.
Sales fell 1.1 per cent from February, with declines in every category apart from food and health.
Mr Bernanke said: “we will not have a sustainable recovery without a stabilisation of our financial system and credit markets” – although he added that “we are making progress on that front”.
Offering his lengthiest defence of his administration’s handling of the crisis to date, Mr Obama rebuffed criticism that it was running excessively large deficits, saying the “last thing a government should do in the middle of a recession is to cut back on spending”.
The president, who is 85 days into his administration, said he had used the time to “clear the wreckage” from the economic collapse in order to prevent the recession from getting larger. But he cautioned against expectations of a rapid recovery. “The severity of this recession will cause more job losses, more foreclosures, and more pain before it ends.”
Both Mr Obama and Mr Bernanke defended their decision to avoid bankruptcies of large financial institutions ahead of the results of bank stress tests this month. Mr Obama gave his clearest defence so far of the administration’s decision to avoid nationalising the banks.
Banks that were shown with insufficient capital in the upcoming “stress tests” would be held accountable and forced to clean up their balance sheets.
“Governments should practice the same principles as doctors – first, do no harm,” he said. “We believe that pre-emptive government takeovers are likely to end up costing taxpayers even more in the end . . . because it is likely to undermine rather than create confidence.” – Copyright Financial Times Limited 2009
