Fed chief Bernanke says recession may end this year

WASHINGTON -- Federal Reserve Chairman Ben Bernanke said Tuesday he expects the recession to end later this year and suggested an upcoming government report could increase confidence in the nation's big banks.

Federal Reserve Chairman Ben Bernanke said Tuesday he expects the recession to end later this year and suggested an upcoming government report could increase confidence in the nation's big banks.

But Bernanke also said major sectors of the economy remain weak, there will likely be "further sizable job losses," and the recovery will be slow.

"We continue to expect economic activity to bottom out, then to turn up later this year," he told the Joint Economic Committee of Congress.

He said he expects unemployment — at 8.5% in March — to peak early next year short of 10%, but it could remain high for some time.

Some economists have forecast a 10% jobless rate.

In February, the Fed chairman predicted a recovery later this year, but on Tuesday, he ticked off fresh signs to back that view. Consumer spending rose 2.2% in the first quarter after falling sharply the second half of 2008. And the housing market shows "signs of bottoming," he said.

While businesses are swiftly liquidating inventories, hurting growth, Bernanke said that clears the way for increased production when demand rebounds. A key index released Tuesday showed services industries shrinking more slowly in April.

Bernanke's earlier forecast "was much more sketchy," says Brian Bethune, chief economist with IHS Global Insight.

Bernanke said the economy remains weak. Gross domestic product fell at an annual rate of more than 6% the past six months. "A relapse in financial conditions" could stall a recovery, he said.

Financial markets are nervously awaiting results of "stress tests" of 19 large banks.

The results, to be released after stock markets close Thursday, are expected to show whether they have enough capital to withstand a worsening economy.

Banks that need more cash will have six months to raise it before tapping government bailout money. A report from Friedman Billings Ramsey predicts at least 11 banks will need more funds.