The U.S. economy is growing at a slower rate than in previous quarters, according to Federal Reserve Chairman Benjamin Bernanke. In Congress, Bernanke said that the Fed is monitoring inflation along with two key variables: the housing and energy markets.
Testifying before the Joint Economic Committee of Congress, Bernanke called the current rate of expansion "more sustainable" than in previous years. He said that the slowdown, which began in the spring of 2006, is tied to a "substantial correction" in the housing market.
Noting that homebuilders cut construction as demand fell, Bernanke said that, "Even so, the inventory of unsold homes has risen to levels well above recent historical norms."
But the Fed chairman also said that the U.S. economy faces risks — among them, the chance that a housing-market correction, made more severe by the troubled subprime lending industry, could be more severe than initially predicted.
Still, Bernanke said, "The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained" — a statement that could ease investors' fears of a recession.
Noting an increase in employment levels, Bernanke said that, "Growth in consumer spending should continue to support the economic expansion in coming quarters."
Overall, Bernanke said, "the economy appears likely to continue to expand at a moderate pace over coming quarters."
Addressing inflation, Bernanke said that overall, consumer price inflation has fallen since 2006 — a change he credited to moderating energy costs. The consumer price index, or CPI, was up 2.4 percent in the past 12 months, compared with rising at a 3.6 percent rate last year.
But, in terms of core inflation, Bernanke said that "recent readings have been somewhat elevated and the level of core inflation remains uncomfortably high."
Core CPI inflation, Bernanke said, rose 2.7 percent over the twelve months ending in February, compared with 2.1 percent a year earlier.
Bernanke blamed some of the rise in core inflation on higher rents, speculating that the change is due to more people delaying the move to buy a home.
Noting that energy prices are lower than last year's record-setting highs, Bernanke said that the trend could bring stability to manufacturing and services costs and "reduce pressure on core inflation."
But, given the unpredictable nature of energy and commodity prices, Bernanke acknowledged that "they remain a source of considerable uncertainty in the inflation outlook."
In terms of the federal funds rate, which has stood at 5 1/4 percent since June 2006, Bernanke did not offer a solid prediction of where the Federal Open Market Committee might go in future meetings.
He said only that while the outlook has brightened in recent weeks, the committee will adjust the rate if new data on inflation requires it.
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