Federal Reserve Chairman Ben Bernanke provided his Semiannual Monetary Policy Report to Congress today in a hearing before the Senate Banking Committee, in which he stated that "there is a reasonable prospect" that the recession could end in 2009 and that "2010 will be a year of recovery,” assuming "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." Noting that the economy remains in a state of severe contraction, Mr. Bernanke stated that if financial markets improve, “the economy will be increasingly supported by fiscal and monetary stimulus, the salutary effects of the steep decline in energy prices since last summer, and the better alignment of business inventories and final sales, as well as the increased availability of credit.”
Mr. Bernanke also stated that the Federal Reserve intends to continue using ever tool it has available to assist in the rebuilding of the financial markets, such as its recent increase of theTerm Asset-Backed Securities Loan Facility (TALF) to $1 trillion. TALF is a good example of a Federal Reserve program intended to help stimulate an effectively closed market – in this case, the asset-backed securities market, which has seen little activity since the fall of 2008.
In response to questions from Committee members, Chairman Bernanke reiterated his support for Treasury's announced plan to continue injecting capital into banks and that those efforts were critical to ending the recession this year. On the issue of "nationalization" of major banks, he stated that "I do not see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it is just not necessary." He predicted that the stress tests called for under Treasury's Capital Adequacy Program will not result in closure of any bank. He also stated that "we don't need majority ownership to work with the banks."