2nd UPDATE: Bernanke: US Faces Continued Job Losses
13 Januar 2009 - 4:46PM
Dow Jones News
The U.S. economy faces the prospect of continued job losses in
coming months but there is hope the situation will stabilize in
2009, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday.
Bernanke said 2008 was a "very bad year" for the labor market,
with accelerating job cuts in recent months.
"We're currently in a very bad stage of the contraction as far
as employment is concerned, and I would expect to see continued
weakness in the first quarter," Bernanke said in a question and
answer session at the London School of Economics.
However, the Fed chief offered a glimmer of hope on the economy
later in the year.
"As we look forward, there's a lot of uncertainty, but I'm
hopeful that later in 2009, depending on factors particularly
including the financial and credit markets, we should begin to see
some stabilization in the economy...and a stop to the bleeding in a
sense."
However, Bernanke said after all recessions, it "takes a while
for the labor markets to recover."
The U.S. economy shed 524,000 in December's non-farm jobs
report, with the unemployment rate lifting to a 16-year high of
7.2%. In total, the U.S. economy lost 2.6 million non-farm jobs in
2008, the worst year since 1946.
On other issues, Bernanke said the U.S. and other authorities
have to think very carefully about the future shape of regulation,
striking a balance between more effective rules and market
innovation.
"There's been a long-standing tendency to try to find" the right
balance - reducing the costs of booms and busts without reducing
the benefits of market forces.
"It's a very difficult balance," Bernanke said in a question and
answer session following a speech to the London School of
Economics.
Bernanke said it's not necessarily the case that authorities
need to adopt "a lot more regulation" in future.
"We need to think through what went wrong" and "think very hard
about how to fix it," he said.
Bernanke said that for now, the Fed's primary focus is on
fighting the economic and financial crisis.
While many of the twists and turns of the crisis were
unexpected, one thing that the Fed was not surprised by was the
problems with government-sponsored enterprises Fannie Mae (FNM) and
Freddie Mac (FRE), which the Fed had been warning about for many
years, Bernanke said.
The Fed's key concerns were the conflict of interest between
private shareholders and public responsibilities, and the fact that
the implicit guarantee by the U.S. government meant they could
raise money without market discipline and without oversight for
investors, he said.
"I don't think that Fannie and Freddie's mortgages were worse
than average; I think they were probably better than average,"
Bernanke said.
"I think the main problem was inadequate capital and inadequate
market discipline for many, many years and it's going to be a very
challenging issue for the new administration (in terms of) what
should we do next with these organizations."
The U.S. Treasury seized Fannie and Freddie on Sept. 6 and
placed them under the conservatorship of their regulator, amid
fears the firms couldn't survive a wave of defaults on the mortgage
loans they own or guarantee.
-By Natasha Brereton and Laurence Norman, Dow Jones Newswires;
44-207-842-9254; natasha.brereton@dowjones.com
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