The chairman of the US Federal Reserve, Ben S. Bernanke, on Tuesday told the Senate banking committee that a full recovery is potentially at least a year away.
The Federal Reserve was doing everything it could to unlock credit markets and encourage lending and borrowing, he said. And that is only if things go according to plan.
"If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said.
The Fed chairman however buoyed investors by stating his resistance to any nationalisation of the big banks.
"We don't need majority ownership to work with the banks," he said, adding that taking over banks more formally would needlessly "destroy the franchise value" of the institutions.
Bernanke acknowledged there was a risk that the economy would become even worse than the Fed is currently forecasting. The global nature of the economic slowdown, as well as a "so-called adverse feedback loop" — the idea that economic and financial conditions become mutually reinforcing — threaten to delay recovery, he admitted, while urging support for the significant fiscal and monetary interventions being made by the government.