WASHINGTON, Feb 25 – US Federal Reserve chief Ben Bernanke held out hope Tuesday for an end to the recession later this year as Japanese Prime Minister Taro Aso called for global confidence in the dollar to stay strong.
As President Barack Obama said that the "day of reckoning has arrived" for the country to face head-on the deepening economic crisis, Bernanke told lawmakers he sees a "reasonable prospect" for an end to the recession later this year if rescue and stimulus programs work as intended.
But the powerful central bank chief warned in his semiannual address to Congress that a full economic recovery could take two to three years or longer.
The US economy is in the midst of a "severe contraction" that has extended into the first quarter of 2009, he said.
"If 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 — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said.
As he spoke, US consumer confidence plunged more than expected in February amid worsening business conditions and a deteriorating job market while home prices in top US cities fell a record 18.5 percent in December, new data showed.
"It is not clear that there is anyone out there who has any confidence left," remarked Joel Naroff, chief economist at Naroff Economic Advisors. "Consumer confidence is now an oxymoron."
But Obama, in excerpts from his impending debut address to a joint session of Congress Tuesday, vowed to make two trillion dollars in budget savings within a decade on what he called a new "day of reckoning" for the US economy.
He demanded budget sacrifices from both Republicans and Democrats and pledged to act "boldly and wisely" to revive the economy.
The US president met Japanese Prime Minister Taro Aso and both agreed the dollar must remain the world\’s key currency despite the US-bred economic crisis, Aso said after their talks in Washington.
"In terms of finance, we said it is important to maintain confidence in the dollar as a key currency," Aso said. "If confidence in the dollar is damaged, it would cause significant effects."
Politically embattled Aso faced another headache — the Japanese economy logged a record trade deficit in January as exports suffered their steepest ever fall due to the economic crisis.
Japan\’s trade deficit ballooned to 952.6 billion yen (9.9 billion dollars) in January as exports plunged 45.7 percent from a year earlier, the finance ministry reported Wednesday.
It was the worst month for Japanese trade since comparable records began in 1979, the ministry said.
The economic news was grim in Europe as well.
Record low business confidence in Germany, Europe\’s biggest economy, a fall in French consumer spending, a spike in Polish unemployment and more job losses were all part of a relentless litany of bad news on the economic front.
Conditions worsened even further for Latvia, one of the European Union nations worst hit by the downturn, where the prime minister resigned on Friday in political infighting over the spiraling economic crisis.
Standard and Poor\’s downgraded its credit rating for the embattled Baltic nation to "junk" status, while the Fitch agency warned of possible delays in emergency IMF funding to help Latvia through the crisis.
S&P also placed its ratings on Estonia and Lithuania on watch "with negative implications," reflecting "a worsening economic outlook for the two economies" hurt by the global slump.
Ukraine\’s hryvnia fell sharply, worsening one of the most dramatic currency collapses in the world since the beginning of the global crisis.
The dollar was changing hands at more than 9.2 hryvnias on Tuesday, from around 5.0 hryvnias last year — a fall of more than 45 percent for the Ukrainian unit.
Meanwhile data showed European Union factory orders in December plummeted 23.3 percent from a year earlier and by 5.2 percent from November in the fifth consecutive monthly drop.
Standard and Poor\’s also cut its ratings outlook to negative from stable on India, once seen as an emerging market giant that along with China would help the world through the slump, citing its "unsustainable" fiscal position.
In South Africa, the official statistics agency said the economy shrank 1.8 percent in the fourth quarter of 2008, the first such contraction in 10 years, as the slowing world economy undercut demand for raw materials.