Bernanke: Economic Growth Will Be Slower

Fed Chairman Tells Congress Economy Likely To Expand At Moderate Rate

(AP)  Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the economy has emerged from its anemic spell, but overall growth for the year will be lower than expected. Inflation remains the chief concern, he said.

Delivering a midyear Fed economic report to Capitol Hill, Bernanke struck a somewhat cautious tone. He suggested that the economy appears likely to expand "at a moderate pace" over the second half.

Still, the Fed chief told the House Financial Services Committee that growth this year will be a bit slower than the Fed projected in February. The inflation forecast, however, wasn't changed: It calls for prices other than food and energy to edge lower.

Against this backdrop, the Fed is likely to leave interest rates where they are through the rest of this year.

For just over a year, the Federal Reserve has held a key interest rate at 5.25 percent, providing a period of stability to borrowers. Before that, the Fed had boosted rates for two years to fend off inflation.

Bernanke took pains Wednesday to hedge the Fed's bets and outline risks to the economy.

One risk is that energy and commodity prices could continue to rise sharply, boosting the prices of lots of other goods and services and thus spreading inflation through the economy.

The Fed "has consistently stated that upside risks to inflation are its predominant" concern, Bernanke said.

Gasoline prices, which peaked in May, receded somewhat in June and are now up past $3 a gallon.

Another risk is that the housing slump could turn out worse than expected, sapping consumer spending and possibly causing overall economic growth to be weaker.

The housing market will remain sluggish for some time, partly because of some now tighter lending standards and the recent rise in mortgage rates, Bernanke said.

Even if the demand for housing were to stabilize somewhat, the pace of new home building will probably fall as builders work down excess stocks of unsold homes, he said.

"Thus declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time," Bernanke said.

Bernanke also outlined efforts by regulators to deal with problems in the market for risky mortgages. Those are mortgages made to people with spotty credit histories.

Foreclosures and delinquencies for these "subprime" mortgages have spiked. Some big subprime lenders have been forced out of business.

Borrowers and lenders have been clobbered by rising interest rates and weak home values. Congress has blasted the Fed and other regulators for not doing enough to crack down on lax lending standards, which had contributed to the problems.

"Rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities — problems that likely will get worse before they get better," Bernanke said.

To better protect consumers, the Fed is looking at ways to improve mortgage disclosure and ways to curb unfair or deceptive lending practices. It also is encouraging lenders to work with troubled homeowners.

[forthepeopl1]

its ok to bail out banks and credic cards with our tax dollars but its not ok to bail out americans that got taken by the banks and credic cards companys..

no one had a proplem until bush and co went to war and to pay for it they had to raise the interest from the feds.

that why we americans are taken it again right up our a/s/s by the bush adminastration..

[terrapin78]

I believe NOTHING from anyone or any agency of the BU$H Administration.

They lie and spin regularly!

[afmca]

One aspect of the economy that will never slow is CEO salaries .. if need be they would export every job in America off-shore. It would be only then that their stupidity would become apparent as nobody is left in America to buy their products.

As to oil futures .. regulation is a joke - Iran conspires with Exxon-Mobil to jerk Bush's chain thus raising prices for a conflict that only Bush would be stupid enough to start. Iran, Saudi Arabia, and the oil companies are beholden to their God - VP Cheney. They are laughing at us .. Cheney is joining in .. Bush acts clueless .. Americans get screwed.

[hypnotoad72]

Anemic? I thought the economy was doing great, then came 14,000 on the DOW.

[killtheliars]

how come CBS news isn't running this headline from Bloomberg?
Bear Stearns Tells Fund Investors `No Value Left'
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aQKWd1Xc2Vt4

Great economy we have right? Since over 30% of it is made up of capital gains this kind of news is basically saying the economy is going DOWN!!!!!!!