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Bernanke preps for hot seat on bailouts, recovery

(Agencies)
Updated: 2009-07-21 16:17

WASHINGTON: Federal Reserve Chairman Ben Bernanke likely will face tough questions this week from lawmakers about taxpayer bailouts of financial companies, slow-moving government efforts to curb home foreclosures and the possibility that the Fed's unprecedented steps to stimulate the economy could spur inflation later on.

The Fed chief is scheduled to deliver a fresh report on the country's economic and financial health in back-to-back sessions on Capitol Hill starting Tuesday morning at 10 a.m. EDT with the House Financial Services Committee.

US Federal Reserve Chairman Ben Bernanke gestures during testimony about his role in Bank of America's acquisition of Merrill Lynch, at a hearing of the House Oversight and Government Reform Committee on Capitol Hill in Washington June 25, 2009. [Agencies]

Skeptical lawmakers also are expected to voice concern about an Obama administration proposal that would expand the Fed's oversight duties over big, globally interconnected financial companies whose failure could imperil the national economy.

Bernanke on Tuesday likely will repeat the central bank's belief that the economy will start growing again sometime in the second half of this year helped by record low interest rates and President Barack Obama's $787 billion stimulus package of tax cuts and increased government spending.

Consumer spending appears to have stabilized, new-home sales are flattening out and declines in capital spending do not look as severe as they had at the beginning of the year, the Fed said last week.

"Bernanke's message: guardedly optimistic. We are seeing signs of the economy's impending turnaround. But it is all pretty much impending still," said Bill Cheney, chief economist at John Hancock Financial Services.

Related readings:  Problems piling up for Bernanke  Bernanke: Economy should grow again later in 2009  Geithner: Too soon to decide on more stimulus  Geithner says US concerned about the deficits

Steering the economy from recession to recovery will be a delicate move for Bernanke -- both economically and politically.

The economy sank at an average annual rate of 5.9 percent in the fourth quarter of last year and the first quarter of this year, the weakest performance in 50 years.

Many analysts believe the economy didn't shrink nearly as much in the April-June quarter. (The government releases results for the second quarter at the end of July.) Many believe the economy could start growing again as early as the current quarter, although the pace of the recovery is likely to be plodding, the Fed said last week.

Because of that, the nation's unemployment rate -- now at a 26-year high of 9.5 percent -- will keep climbing. Companies won't be in any mood to ramp up hiring until they feel secure that the recovery has staying power.

By the Fed's own forecasts, the jobless rate could rise as high as 10.1 percent this year. Some Fed officials think it could hit 10.5 percent this year, and 10.6 percent in 2010. The post-World War II high was 10.8 percent at the end of 1982, when the country had suffered through a severe recession.

Rising unemployment is making it harder for people to pay their monthly mortgage bills.

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