U.S. economy closer to rebound, Fed says

JACKSON, Wyo. — The world economy is starting to emerge from its deep recession, Federal Reserve Chairman Ben Bernanke said Friday, owing to aggressive action by the Fed and other policymakers.

"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 growth in the near term appear good," Bernanke said, in a speech at an economic symposium sponsored by the Kansas City Fed.

After he spoke, stocks rallied. The Dow Jones industrial average was up 1.5 percent, or 155 points, Friday afternoon. Investors were also cheering a National Association of Realtors report that homes sales soared 7.2 percent in July, the largest monthly increase in a decade. Although home prices continue to tumble, analysts said the report is another reflection of improvement in the economy.

In his speech, Bernanke laid out a broad defense of the central bank's actions in the financial crisis, arguing that the extraordinary interventions of the Fed and its counterparts around the world averted global catastrophe.

Bernanke said that the financial crisis that deepened in September "sparked a deep global recession, from which we are only now beginning to emerge."

"History is full of examples in which policy responses to financial crises have been slow and inadequate, often resulting ultimately in greater economic damage and increased fiscal costs," Bernanke said. "In this episode, by contrast, policymakers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation."

The speech is part of a broader effort by the Fed chairman to remind Americans of how dark the days of last fall were — and to take some credit for helping to prevent a much worse economic calamity. Bernanke is trying to defuse anti-Fed sentiment on Capitol Hill and among the public. He also defended the Fed's actions, which include a wide range of unconventional lending programs, in an unusual town hall-style special on PBS last month.

Bernanke's term ends Jan. 31, and President Obama will decide in the coming months whether to reappoint or replace him.

"As severe as the economic impact has been, the outcome could have been decidedly worse," said Bernanke, a scholar of the Great Depression.

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