Federal Reserve chairman Ben Bernanke said a recovery from the financial crisis 'will not happen right away' but that the US economy will eventually emerge 'with renewed vigor.'
Speaking to the Economic Club of New York this evening, the Fed chairman said that the problems in the economy and markets 'are large and complex, but in my judgment, our government now has the tools it needs to confront and solve them.'
Bernanke said the crisis has many novel aspects stemming from the globalisation of markets and quick movements of money and information but that 'the current situation also has much in common with past experiences.'
The Fed chairman did not use the term recession, as mentioned by San Francisco Fed president Janet Yellen last night, but he suggested that the economy would remain weak for some time.
The main problem, Bernanke said, is a loss of confidence in markets and financial institutions.
The massive $700 billion rescue approved by US lawmakers and similar measures in other countries will go a long way toward steadying markets, he said.
'Stabilisation of the financial markets is a critical first step, but even if they stabilise as we hope they will, broader economic recovery will not happen right away,' Bernanke said.
A pair of top US Federal Reserve officials yesterday highlighted risks to the US economy from the global credit crisis, but did not hint at more interest rate cuts as a solution.
Janet Yellen, President of the San Francisco Fed, was especially blunt, saying the US economy appeared to be in a recession and was likely to contract in the fourth quarter after near-flat growth in the third.
'The outlook for the US economy has weakened noticeably,' Yellen said in a speech to the Financial Executives International's Silicon Valley chapter in California. 'Virtually every major sector of the economy has been hit by the financial shock.'
She said that while she 'strongly supported' last week's co-ordinated global rate cut to shore up a teetering world economy, rate cuts were not a cure-all.
James Bullard, St Louis Fed President, also said the Fed should not pin too much hope on monetary policy.
'Over-reliance on interest rate policy in this environment does little to solve the problems at hand,' Bullard said in a speech in Memphis, Tennessee.
