WASHINGTON — Cautioning that he's likely to be more wrong than right, Federal Reserve Chairman Ben Bernanke said Tuesday that the U.S. economy was expected to return to growth late this year and that 2010 would be "a year of recovery."
Bernanke gave his twice-annual address to the Senate Banking, Housing and Urban Affairs Committee, telling lawmakers that the economic recovery will depend in large measure on the ability to arrest the deep problems in the banking sector and financial markets.
"If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said, noting that the unemployment rate would still be hovering around 8 percent.
The Fed chairman nonetheless distanced himself from his own forecast, acknowledging that predictions to date have proved woefully inadequate.
"The outlook for economic activity is subject to considerable uncertainty, and I believe that, overall, the downside risks probably outweigh those on the upside," Bernanke cautioned.
On Wall Street, stocks rose. The Dow Jones industrial average added 236.16 points, while the Standard & Poor's 500 index and the Nasdaq composite index also gained. The advance came a day after another sharp drop in stocks left the Dow Jones and the S&P 500 near 12-year lows.
But Americans' already battered confidence in the economy has gone into free fall in February, sinking to new lows as consumers grow more fearful over sweeping job cuts and shrinking retirement accounts.
Fresh economic news out Tuesday is likely to compound their gloom.
Major retailers including Target Corp., Home Depot and Macy's Inc. reported depressed fourth-quarter results. Another widely watched index showed home prices tumbling by the sharpest annual rate on record.
The New York-based Conference Board said its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters had expected.
The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4.
The Present Situation Index, which is consumers' assessment of current economic conditions, fell to 21.2 from 29.7 last month. The Expectations' Index, which is consumers' outlook for the next six months, sank to 27.5 from 42.5.
"Looking ahead, increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
Franco added that the report showed worries about inflation, which had eased over the past several months, had picked up.