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Thread: Bernanke is optimistic about US economy

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    Default Bernanke is optimistic about US economy

    World
    Published February 15, 2007

    Bernanke is optimistic about US economy

    Cites improvements in inflation, stable housing market


    (WASHINGTON) Federal Reserve chairman Ben Bernanke yesterday told Congress that the economy should grow modestly this year despite lingering pain from a housing slump and stuck to the Fed's forecast that inflation will continue to ebb.

    Still, Mr Bernanke was not prepared to declare victory and close the door on the possibility of further interest rate increases. Even with recent improvements in 'core' or underlying inflation, the situation remains 'somewhat elevated', he said. Core inflation excludes the more volatile categories of energy and food.

    Mr Bernanke, delivering the Fed's first economic report for 2007 to Capitol Hill, offered a mostly upbeat assessment of the economy's outlook. Besides improvements on the inflation front, the Fed chief also cited some signs of stabilisation in the ailing housing market.

    'Overall, the US economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,' the Fed chief said in prepared remarks to the Senate Banking Committee.

    Currently, interest rates are at a level that is 'likely to foster sustainable economic growth and a gradual ebbing of core inflation', he added.

    The Fed has held a key interest rate steady at 5.25 per cent since August. Before that, the central bank had steadily boosted rates for two years, the longest ever stretch of increases, to fend off inflation. Many economists predict the Fed will leave rates alone for much of this year.

    Even with his mostly positive assessment, Mr Bernanke was careful to hedge his bets and pointed out risks that could upset the generally good economic outlook.

    A predominant one is that inflation might flare up, which is why the Fed is still keeping open the option of another rate increase.

    It will 'be some time before we can be confident that underlying inflation is moderating as anticipated', Mr Bernanke said. If inflation doesn't wane as the Fed expects, policymakers are 'prepared to take action', he said.

    On the other hand, there is the risk that a deeper than expected residential real estate bust could yet unfold, which could hurt overall economic growth, the Fed chairman said. If that were to happen, Mr Bernanke added, the Fed in theory might be inclined to lower rates to help bolster the economy.

    Mr Bernanke, however, did not specifically mention the possibility of a rate cut.

    Mr Bernanke, a former college professor, marked his one-year anniversary at the Fed on Feb 1. President George W Bush tapped him to succeed longtime chairman Alan Greenspan, who rose to iconic status in his 18-plus years at the helm of the Fed.

    Senate Banking Committee chairman Christopher Dodd, who holds White House aspirations, said he hopes to gain insights from Mr Bernanke on the state of the middle class in the country. - AP

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    Default Bernanke spars with Congress, says rate may rise

    Feb 17, 2007

    Bernanke spars with Congress, says rate may rise


    WASHINGTON - US FEDERAL Reserve chairman Ben Bernanke, in his first clash with the Democratic-controlled House of Representatives, signalled the central bank will need to raise rates if inflation accelerates.

    Mr Bernanke sparred with House Financial Services Committee chairman Barney Frank of Massachusetts, who said it was 'troubling' the Fed chief was biased towards raising rates even while forecasting only moderate growth.

    Mr Frank said he did not understand why inflation was the main concern and wanted to be 'kept involved' with the Fed's decision-making. He said the question for the Fed should be whether it will consider lowering rates, not raising them, because the economy is expanding below its 'potential'.

    'If inflation becomes higher for some reason, then the Federal Reserve would have to respond to it,' Mr Bernanke said on Thursday in response to Mr Frank's questioning. The hearing is Mr Bernanke's second day of testimony on the Fed's semiannual outlook.

    The first Democratic-led congressional majority in more than a decade is pressing Mr Bernanke about growing income inequality, and ways to bridge the gap between the 5 per cent of families who make at least US$184,500 (S$283,200) a year and everyone else. House committee members questioned the Fed chairman on Thursday on the state of United States health care, job creation and affordable housing mortgages.

    But the Democrats praised the Fed chief for being clearer in his language than predecessor Alan Greenspan, who was famous for deflecting questions with complex responses. 'At least you are speaking in English and I can understand what you are saying,' Democratic Representative Melvin Watt of North Carolina told Mr Bernanke.

    Mr Bernanke's prepared testimony was nearly identical to the one he gave to the Senate Banking Committee on Wednesday. He reiterated his statement that it will take a while before the Fed relaxes its guard on inflation, even if declining energy and commodity prices help.

    The Fed's 'predominant' concern is that inflation does not ease as expected, Mr Bernanke said, echoing the statement that accompanied the Federal Open Market Committee's Jan 31 decision.

    'Policy is going to respond to new information,' Mr Bernanke said. 'We're going to be continually re-assessing our outlook and responding. Policy also has to respond to risks. There are risks in both directions', such as stronger-than-anticipated spending or further declines in housing, he said.

    'It's important that the Federal Reserve be independent and be able to make independent decisions about interest rates,' Mr Bernanke said. Still, Congress should oversee the Fed to ensure it pursues its mission of price stability and maximum sustainable employment, he added.

    The Fed on Thursday pared its estimate of economic growth this year to between 2.5 per cent and 3 per cent. It predicted an expansion of between 2.75 per cent and 3 per cent in 2008.

    BLOOMBERG NEWS

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