Bernanke says economy is ‘leveling out’

The Federal Reserve delivered a vote of confidence in the economy yesterday, saying it would slow the pace of an emergency rescue program and indicating the recession appears to be ending.

The central bank also held interest rates steady at record lows, with a closely watched bank lending rate near zero, and again pledged to keep them there for "an extended period" to nurture an anticipated recovery.

Fed Chairman Ben Bernanke and his colleagues said the economy appeared to be "leveling out" -- a considerable upgrade from their last meeting, in June, when the Fed observed only that the economy's contraction was slowing.

"It's either over or very close to being over," said Dean Croushore, chairman of the economics department at the University of Richmond's Robins School of Business. "I think probably maybe June will be considered the end of the recession, give or take a few months."

Another indication that the global recession may be loosening its grip came yesterday from the Commerce Department, which reported that U.S. imports rose for the first time in 11 months and exports rose for the second straight month.

The more optimistic tone lifted Wall Street. The Dow Jones industrials gained about 120 points, or 1.3 percent, to close above 9,360 -- near their highest level since the market bottomed out in March.

The Fed said it gradually would slow the pace of its program to buy $300 billion worth of Treasury securities and shut it down at the end of October, a month later than scheduled previously.

It has bought $253 billion of the securities so far. The program is designed to force down interest rates for mortgages and other consumer debt and spur Americans to spend more money.

"I think the Fed is feeling increasingly comfortable about where the economy is going," said Mark Zandi, chief economist at Moody's Economy.com. "For the first time in two years, the Fed is taking one step -- a baby step -- toward unwinding the massive stimulus."

The Treasury-buying program's effectiveness has been questioned on Wall Street and Capitol Hill, with critics saying it looks like the Fed is printing money to pay for Uncle Sam's spending binge.

As the Fed winds down the program, rates on government debt might edge higher, economists said. But the Fed appeared to feel sufficiently secure that higher rates would not jeopardize a recovery, they said.

UR's Croushore said that while there have been some positive numbers, financial instability, such as a tight credit market, could hold the economy back.

"There's still a lot of people not wanting to take on more risk," he said. "Banks and credit-card companies are not lending as much, because they got burned."

The Fed left the target range for its bank lending rate at zero to 0.25 percent. And economists think it will stay there through the rest of this year. The rationale: Super-cheap lending will lead Americans to spend more, which will support the economy.

The Fed expressed confidence that low rates and other aggressive action gradually will bolster the economy. Even so, economic activity probably will "remain weak for a time," the Fed warned.

Further job losses, sluggish income growth, hits to wealth from falling home values, and still-hard-to-get credit could make Americans cautious in the months ahead, the Fed said.

"The worst is behind us; it's just that the recovery may be a little slower than one would expect," Croushore said.

Staff writer Emily C. Dooley contributed to this report.