Bernanke: Tentative Signs of Stabilization

The U.S. economy has shown tentative signs of stabilization, Federal Reserve Chairman Ben Bernanke told members of Congress Tuesday, although the labor market still hasn't found its footing yet.

In his semi-annual monetary policy report to the House Committee on Financial Services, Bernanke argued that "the pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization."

"The labor market, however, has continued to weaken," Bernanke said in his testimony. "Although the unemployment rate is projected to peak at the end of this year, the projected declines in 2010 and 2011 would still leave unemployment well above [Federal Open Market Committee] participants' views of the longer-run sustainable rate."

He added that financial conditions remain "stressed" and that many households and businesses "are finding credit difficult to obtain."

Bernanke also asserted that aggressive policy actions taken around the world last fall "may well have averted the collapse of the global financial system, an event that would have had extremely adverse and protracted consequences for the world economy."

The FOMC, the policy-making arm of the Fed, anticipates that economic conditions are likely to warrant maintaining the federal funds rate at exceptionally low levels for an extended period, Bernanke said.

The Fed chairman said the central bank feels it is important to assure the public and the markets that the "extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation."