Bernanke: Economy on verge of recovery, worst of crisis is over

— -- Federal Reserve Chairman Ben Bernanke on Friday gave his most upbeat economic outlook yet, saying the recession seems to be ending and a recovery should begin shortly.

"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 said at the Fed's annual conference in Jackson Hole, Wyoming.

Most economists expect the recession to end in the third quarter, with many saying it's already over. Many, however, expect unemployment — now at 9.4%— to peak above 10% early next year.

His assessment was even more emphatic than the Fed's policy statement last week, which simply said "economic activity is leveling out" — meaning the economy has stopped shrinking.

Bernanke also appeared to provide a slightly more positive prognosis for the pace of the recovery, saying it's "likely to be relatively slow at first, with unemployment declining only gradually from high levels." In previous public statements the Fed chairman generally indicated the recovery likely would be slow and gradual.

Some economists, however, have positively revised their outlooks recently. Factory output and new orders grew last month at the fastest pace in two years. Housing starts in June rose to the highest level since last fall. And both stock and corporate bond markets have climbed sharply.

Yet in light of the improvement, the Fed said last week it will conclude its purchases of $300 billion in Treasury securities by the end of October. That's a sign the central bank believes the economy is healthy enough to wind down an extraordinary initiative to pump cash into frozen credit markets to lower interest rates on loans for consumers and businesses.

Still, with credit markets still tight and many banks teetering, Bernanke cautioned that "critical challenges remain."

"Strains persist in many financial markets across the globe, financial institutions face significant additional losses, and many businesses and households continue to experience considerable difficulty gaining access to credit," Bernanke told leaders of central banks from around the world and economists.