Excerpts from Fed. Chair Ben Bernanke's Testimony at a Hearing on the State of the Economy

June 10, 2010

At a hearing yesterday convened by House Budget Committee Chairman John Spratt (D-SC),Federal Reserve Chairman Ben S. Bernanke testified about the improving economy and the effectiveness of the federal responses to the financial crisis and the recession, among other topics. 

The Economy is Recovering

“The recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year. Moreover, the economy--supported by stimulative monetary policy and the concerted efforts of policymakers to stabilize the financial system--appears to be on track to continue to expand through this year and next.”

 GDP Growth on Track to Continue

“The latest economic projections of Federal Reserve Governors and Reserve Bank presidents, which were made near the end of April, anticipate that real gross domestic product (GDP) will grow in the neighborhood of 3-1/2 percent over the course of 2010 as a whole and at a somewhat faster pace next year.”

 Private Sector is Strengthening

“Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the recovery in economic activity.”

 TARP and Recovery Act Have Been Effective Despite Short-Term Deficit Spike

“The exceptional increase in the deficit has in large part reflected the effects of the weak economy on tax revenues and spending, along with the necessary policy actions taken to ease the recession and steady financial markets. As the economy and financial markets continue to recover, and as the actions taken to provide economic stimulus and promote financial stability are phased out, the budget deficit should narrow over the next few years.” 

“[I]n the absence of TARP, we would have had a much deeper recession and the losses of tax revenue and the other costs would have far outweighed the cost of the TARP.”

Spratt question:  “Looking back, if we had not taken the extraordinary steps that we took, starting with the TARP solicitation by the Bush Administration, the Recovery Act by the Obama Administration, and many other fiscal and monetary steps in between, where would we be now?  Do you think that those steps have been vindicated by events?”

Bernanke:  “Yes, Mr. Chairman, I do . . . . certainly we have averted what I think would have been, absent those interventions, an extraordinarily severe downturn, perhaps a great depression.”