US bank boss predicts end of recession this year

The US recession should "bottom out" over the coming months with the economy beginning to grow again by the end of the year, the head of the Federal Reserve said today.

In front of a joint economic committee in Washington, Ben Bernanke delivered an assessment that balanced a more optimistic outlook with notes of caution over worsening unemployment.

Despite predicting the end of the recession in 2009, he warned that there would be further "sizeable" job cuts as businesses continue to struggle in the current economic climate.

Since the recession began in December 2007, more than five million Americans have lost their jobs.

Mr Bernanke believes that further redundancies would come.

In a prepared testimony to the Congressional committee, he said: "The most recent information on the labour market suggests that we are likely to see further sizeable job losses and increased unemployment in coming months".

However, his assessment of the overall outlook for the US economy was less gloomy.

"Recent statistics suggest that the pace of contraction may be slowing," he said, adding: "We continue to expect economic activity to bottom out, then to turn up later this year."

He pointed towards signs that the housing market was beginning to stabilise and figures showing that consumer spending had rebounded in the first quarter of 2009.

However, he warned that the rosier outlook could still be hit if the recovery of the banking sector does not materialise.

Mr Bernanke said: "An important caveat is that our forecast assumes continuing gradual repair of the financial system, a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall."

Mr Bernanke's comments failed to have much impact on the markets. Ahead of the results of the US government's stress tests on banks, movement in Wall Street was cautious, but did not slip far from yesterday's gains.

The Dow Jones Industrial Average fell just 0.2% to 8,410.65. It was on the back of a boost of 214 point on Monday.

Investors are keenly looking towards Thursday's release of "stress test" results. They will provide details of the robustness of the banking sector and if more bail-out cash is likely to be needed.