On the verge of economic rebound?

JACKSON, Wyo. — You could almost hear the sigh of relief.

Last year, a sense of foreboding hung in the air at the Federal Reserve's annual summer conference.

As the worst financial crisis since the Great Depression was about to hijack the global financial system, Fed officials and their counterparts around the world huddled here in the Grand Tetons to weigh the threat.

Mortgage giants Fannie Mae and Freddie Mac were soon to topple. A dying Bear Stearns, with the Fed's help, had already fallen into the arms of JPMorgan Chase.

What a difference a year makes.

"The prospects for a return to growth in the near term appear good," declared Federal Reserve Chairman Ben Bernanke in his Friday keynote speech to the conference.

At almost the same time Bernanke spoke, the National Association of Realtors reported sales of existing homes jumped 7.2 percent in July — the biggest monthly increase in more than a decade and much bigger than analysts had expected.

Investors reacted ebulliently to both the housing news and to the Fed chairman's remarks, with the Dow Jones industrial average jumping as soon as the markets opened and ending the day up 155.91 points to 9,505.96. Though stock prices are far below their all-time highs, the Dow has risen 45 percent from March and is at its highest point this year.

And though California posted a record-high jobless rate, there was a positive sign nationwide last month: The rate fell in 17 other states.

The Labor Department said Friday that unemployment reached record levels in four states: California at 11.9 percent, Nevada at 12.5, Rhode Island at 12.7 and Georgia at 10.3.

On Tuesday, Washington state reported its unemployment rate had dropped to 9.1 percent in July and the state gained 4,000 jobs.

So with some good news in hand, conference members at the Wyoming gathering this year were able to carry on without the dread that enveloped the 2008 gathering.

This year's atmosphere is "absolutely, dramatically different," observed Laurence Meyer, a former Fed member and now vice chairman of Macroeconomic Advisers.

"Last year, there was a sense that if we weren't on the edge of abyss, we were close to it. There was a lot of trepidation and there was no sense of the success of policies."

In an earlier speech, Stanley Fischer, governor of the Bank of Israel, said it's "reasonable to declare that the worst of the crisis is behind us." But he also warned that policymakers can't afford to let down their guard.

Still, Bernanke struck his most optimistic tone since the crisis broke, saying in a speech that we have "avoided the worst" and that the global economy is "beginning to emerge" from the recession.

Tightening policy

Going forward, Fed officials could feel more pressure to further tighten monetary policy as a way of countering the government's deficit spending. The massive amount of borrowing could push up long-term interest rates, if foreign investors balk at buying up U.S. debt.

Assessing the extraordinary events of the last year, Bernanke argued that aggressive action by countries around the world prevented a collapse that would have been even more catastrophic than the meltdown that took place.

Asserting that short-term-lending markets are functioning more normally, that corporate bond issuance is strong and that other "previously moribund" securitization markets are reviving, Bernanke said the U.S. and other major countries are poised for growth.

In emphasizing not just an imminent end to the recession but also good chances for growth, Bernanke's assessment was in some ways surprising.

Despite encouraging signs on many fronts, U.S. retailers have reported unexpectedly weak sales in the past week — a sign consumer spending could drag down economic growth in the months ahead. And Thursday, the Labor Department reported new unemployment claims jumped again.

More bank closures

Friday, a prominent banking analyst warned that hundreds more U.S. banks will fail over the next year, adding to the difficulties that small businesses have experienced in routine borrowing.

"There will be over 300 bank closures," said Meredith Whitney, the Wall Street analyst who accurately predicted last year that Citigroup would have to cut its dividend, in an interview with Bloomberg Television at the conference.

Jean-Claude Trichet, president of the European Central Bank, cautioned against assuming the world is back to normal.

"We still have a lot of work to do," he said, adding "it would be a catastrophe" if governments fail to heed the lessons of the crisis and financial regulation.

Information from The New York Times is included in this report.