Despite initial thoughts that the current recession could result in a depression, Federal Reserve Chairman Ben Bernanke believes we’re actually moving in the opposite direction. This news comes from his recent CBS “60 Minutes” interview – the first of its kind from a sitting Federal Reserve chairman in 20 years. Despite much turbulence in the financial markets for the past 6 months, mortgage rates have steadily become more affordable as the government has introduced a new mortgage plan to help the ailing housing market that has dragged the entire economy down with it.
In the interview, Bernanke surprised many with his news that the recession could be ending as soon as this year. One reason he noted for this early ending is the survival of the nation’s largest banks, while another was the government’s decision to keep money from contracting – a mistake that led to the Great Depression. By dedicating hundreds of billions in financial bailouts to a number of large banks, mortgage lenders and insurers, mass failures were avoided and financial institutions maintained solvency.
But while there is good news on the horizon for the recession, Bernanke does believe that the 8.1% unemployment rate will continue to rise for some time. Additionally, he believes the US will not make a full recovery because the financial system is still in crisis – also, interest rates will need to be raised and the supply of money will need to be reduced for the recovery to be inflation-free.
Nonetheless, there looks to be light finally shining at the end of the tunnel. At least according to Bernanke, who believes that we will likely see the first of the positive changes by the beginning of 2010.
Do you believe the Federal Reserve and government policies have been enough to steer us from a depression?