Federal Reserve chief predicts end to downturn

In an upbeat speech to the congressional Joint Economic Committee chairman of the US Federal Reserve Ben Bernanke predicted an end to the recession by the end of the year. His comments initially cheered the markets ahead of the release of 'stress tests' for the US banking system.

His message was considerably more positive than at his last appearance in front of the committee in February and he was able to point to a number of improving factors, notably consumer spending for the first quarter and a bottoming in the housing market.

Bernanke made positive comments on the upcoming bank stress test results, although reports later that Bank of America may need $34bn in fresh capital dampened the market's enthusiasm somewhat.

And he did sound a note of caution, warning that any recovery would take time and be accompanied by high unemployment, saying: "Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly."

Money market rates fell to record lows in the wake of Bernanke's comments, with three-month dollar Libor dropping below one per cent for the first time meaning lower borrowing costs across the globe.

WHAT THEY ARE SAYING
Hans Lorenzen, credit strategist at Citigroup, in the FT: "There is some optimism as some markets have responded positively to the economic data. But we are talking about optimism based on the fact we are not about to suffer a depression. We have shifted from depression to recession. There is still a long way to go before we are out of this."

Stephen King, the Independent: "I am not disputing the existence of green shoots. Their fecundity, though, is not yet guaranteed. The level of activity is remarkably low. It wouldn't take much for inflation to turn into deflation. We have reached the limit with traditional monetary levers and we are not very far away from the limit with fiscal levers as well. I hope that earlier policy moves will have a lasting positive effect. At this stage, though, it is far too early to give the economic patient a clean bill of health." ·