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Bernanke: Bad Months Ahead, But Recession Could End Later This Year

U.S. Federal Reserve Chair Ben S. Bernanke says "there is a very reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery." As part of his Semiannual Monetary Policy Report to the Congress, Bernanke testified to the Senate Banking Committee that the economy is going through a "severe contraction" and is likely to continue shrinking during the first six months of this year, but that if economic stimulus from the government gets the credit and financial markets moving, the rest of the U.S. economy should begin to bounce back. He warned of the "adverse feedback loop," in which economic and financial conditions reinforce negative growth -- for example, consumers lose jobs and cut back spending, which forces more companies to lay off more people, who then cut spending, etc. "To break that adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilize financial institutions and financial markets," he said. Bernanke also warned that adverse financial conditions in other countries could hurt U.S. exports, which might aggravate the U.S. economy further.

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