Bernanke: Economy could grow soon

Federal Reserve Chairman Ben Bernanke said that the U.S. economy is about to start growing again, although he cautioned it will be a slow recovery with continued high unemployment in the near term.

Speaking at an annual symposium in Jackson Hole, Wy., Bernanke echoed a statement made by the Fed earlier this month, saying that "economic activity appears to be leveling out, both in the United States and abroad."

Bernanke went a step further though, indicating that "prospects for a return to growth in the near term appear good."

But the central bank chief warned that problems remain in financial markets around the globe, and that with banks facing "substantial" additional losses ahead, businesses and consumers will continue to have trouble accessing credit.

"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels," he cautioned.

Bernanke spent much of the speech reviewing the economic crisis that unfolded last September in the wake of the bankruptcy of Lehman Brothers and near collapse of insurer AIG (AIG, Fortune 500).

He defended the actions of the Fed, Treasury Department and Congress, as well as major governments around the world, in their response to the crisis. He said those actions likely prevented the financial panic from plunging the world into a far more serious economic downturn, possibly even a depression.
0:00 /2:44Mixed signals on the recovery

"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk," he said.

He said the meltdown proved that there was the need for a new financial regulatory framework. But he cautioned that no matter what rules are put in place, the kind of intervention practiced by the Fed and other central banks may be necessary again at some point in the future.

"In a sufficiently severe panic, funding problems will almost certainly arise and are likely to spread in unexpected ways," he said. "Only central banks are well positioned to offset the ensuing sharp decline in liquidity and credit provision by the private sector. They must be prepared to do so."