U.S. Federal Reserve chief Ben Bernanke on Friday said prospects for a return to global economic growth looked good "in the near term," the clearest signal yet the world's most powerful central banker thinks a recovery is at hand.
"After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," Bernanke told an annual Fed conference here in the shadows of the Grand Teton mountains.
"Although we have avoided the worst, difficult challenges still lie ahead," he said, cautioning that the "recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."
His remarks were a bit more upbeat than a statement from Fed policy-makers last week, and nodded toward private forecasts for a solid upturn in the second half of 2009, while stressing headwinds still face the global economy.
Bernanke said "critical challenges remain" from financial markets still strained from a severe crisis that broke two years ago. The difficulties households and businesses face in getting loans is another source of stress, he said.
The crisis highlights the need to "urgently" address structural weaknesses in the financial system, particularly in the way governments set rules and supervise it, he said. Bernanke delivered the remarks at a conference sponsored by the Kansas City Federal Reserve Bank that draws top central bankers from around the world, along with a Who's Who of economists.
Germany, France and Japan have pulled out of recession and the U.S. economy appears to be stabilizing after a devastating financial crisis and painful economic downturn that eliminated almost seven million U.S. jobs.
The Fed chopped interest rates to near zero in December and has pumped around $1 trillion into financial markets to combat the crisis and spur economic growth.
Earlier this month, the central bank said it would phase out its purchases of long-term U.S. Treasuries, one of the extraordinary measures it has used to revive the economy.
Its emergency action has gained traction. Data out on Friday showing a powerful jump in U.S. existing home sales in July to an annualized pace of 5.24 million units, notching the fastest rate in two years.
U.S. stock indexes rallied after Bernanke's speech and the better-than-expected housing data, with the benchmark S&P 500 index rising to new 10-month highs while Treasury bonds fell.
While the U.S. economy appears to be gaining health, analysts worry a recovery could prove fleeting.
Expectations for solid growth in the second half of the year reflect the impact of a government program to spur car buying and an anticipated restocking of inventories. U.S. consumer demand is still weak and unemployment is rising.
The Fed chairman's talk to an audience of peers at the annual Fed retreat outlined how central banks reacted to the series of flashpoints in the crisis. Without speedy actions by the Fed - some of which were "unfortunately unavoidable" - the panic could have intensified, he said.
"As severe as the economic impact has been, however, the outcome could have been decidedly worse," Bernanke said.
(Mark Felsenthal and Kristina Cooke, Reuters , JACKSON HOLE, Wyo. )
