U.S. economy in 'severe contraction': Bernanke

U.S. Federal Reserve chairman Ben Bernanke says the U.S. economy is in a 'severe contraction' and a full recovery is likely to take more than two years.

U.S. Federal Reserve chairman Ben Bernanke says the U.S. economy is in a "severe contraction" and a full recovery is likely to take more than two years.

Speaking to the U.S. Senate banking committee, Bernanke said the central bank will use all the tools at its disposal to get the economy moving again.

In his testimony to the commmittee at a hearing in Washington, D.C., Bernanke said he hoped the recession would end this year and that 2010 would be a year of recovery. However, he said there are tremendous risks to that outlook as recovery hinges on the return to normal function of credit and financial markets.

"The nation's economy is undergoing a severe contraction," Bernanke told legislators.

U.S. unemployment is currently around 7.6 per cent, a 16-year high, and is expected by the Federal Reserve to climb by close to nine per cent this year and remain above the normal level of roughly five per cent into 2011.

Since December 2007, the U.S. economy has shed about 3.6 million jobs as a recession took hold.

The U.S. government has already rolled out an arsenal of weapons to fight the economic downturn, including a $787-billion-US stimulus package, a $75-billion plan to stem home foreclosures and a revamped bank rescue plan.

The statements from Bernanke came on the same day that a measure of U.S. consumer confidence fell to record lows in February. The Conference Board of New York said its consumer confidence index fell more than 12 points in February to 25, from a revised 37.4 in January.

One year ago, the consumer confidence reading stood at 76.4.

Looking ahead, increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever," said Lynn Franco, director of the Conference Board Consumer Research Center.

With files from Associated Press