Housing up, yet Bernanke warns of ‘shallow’ recession

Federal Reserve Chairman Ben Bernanke warned of threats to the economic recovery and the nation being at risk of slipping back into a recession.

Bernanke did offer a positive outlook for the housing market, however: He acknowledged the housing market is showing signs of improving, but he said that it is contributing less to economic growth than it has in past recoveries.

Bernanke announced no new action by the central bank to try to stimulate the sluggish economy, although some analysts predict that before the end of the year the Fed will act to buy up more Treasury bonds, which could lower long-term interest rates even further from record lows.

In testimony to the Senate Banking Committee, Bernanke pushed lawmakers to reach a compromise on tax increases and spending cuts that are to take effect by the end of the year. He said that if lawmakers don’t approve the tax increases and spending cuts by then, it’s likely a “shallow recession would occur early next year.”

“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run stability and the fragility of the recovery,” Bernanke told the Senate Banking Committee. “Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence.”