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U.S. Fed chairman offers cautious optimism on economy
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08:36, July 23, 2009

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U.S. Federal Reserve Chairman Ben Bernanke has told Congress he holds cautious optimism for the U.S. economy.

Testifying before Congress on Tuesday, Bernanke noted "positive signs" as well as challenges ahead. Bernanke's remarks have shown the latest upbeat view from a group of economic heavyweights.

Bernanke told lawmakers that more recently "the downturn in economic activity appears to be abating and financial conditions have eased somewhat, developments that partly reflect the broad range of policy actions that have been taken to address the crisis."

Bernanke is not alone as to his cautious optimism. White House budget director Peter Orszag said July 19 that in the second quarter, U.S. gross domestic product figures are likely to be a lot better than in the first quarter.

Lawrence Summers, director of the National Economic Council, said in a July 17 speech that "We were at the brink of catastrophe at the beginning of the year but we have walked some substantial distance back from the abyss."

Summers has also said on various recent occasions that the U.S. economy is no longer in "freefall."

While saying the U.S. economic outlook shows positive signs, Bernanke didn't shy away from sending warnings during his testimony before Congress.

"Despite these positive signs, the rate of job loss remains high," he said, adding that unemployment is likely to remain high into 2011 and could sap fragile consumer confidence.

Bernanke also warned that record budget deficits may begin to pose a threat to the recovery.

Bernanke's frank remarks about the deficits were well received by financial markets. As more investors believed that the Fed was prepared to handle the problem, Treasury prices climbed and 10-year note yields touched the lowest levels in five days.

Bernanke's speech sent the dollar higher against the euro while the New York stock market also got a boost.

Bernanke also addressed inflation concerns during his congressional testimony, citing "limited inflation pressures" that would allow the Fed to keep low interest rates for an "extended period".

"It is important to assure the public and the markets that the extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation," Bernanke said.

"We are confident that we have the necessary tools to implement that strategy when appropriate," he added.


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