Recession May Be Over But Economy Still Weak
Federal Reserve Chairman Ben Bernanke stated today that the recession is “very likely” over but with unemployment still on the rise, the economy will “feel very” weak for some time. Many investors will be wondering if this signals the start of the government’s exit strategy on weaning the economy off of the massive support it has provided to the financial system over the past year.
Inflation isn’t necessarily a concern for the time being but it has to be in the back of everyone’s mind, you can’t have the national debt grow by that much and not have any long term repercussions. The Fed will have a far easier time in shrinking it’s balance sheet when the time comes but with the national debt expected to double once again in the next decade there is little the government can do about it’s deficit spending unless it decides to raise taxes drastically.
Although there has been increased sales activity in recent months in the housing market, prices remain depressed and could be for years to come. The credit just isn’t there to fuel a boom in the housing market and it won’t be, the banking system won’t return to the leverage levels it had a few years back and even if they wanted to, regulators likely wouldn’t allow it.
The employment picture will be weak for some time and some are predicting it could be as many as 4 years before the economy returns to it’s normal 5% unemployment rate. Over 7 million jobs have been shed during the recession and even the government’s massive stimulus plan is only expected create about 3 million jobs over a three year period, less than half of what’s already been lost.
