Bernanke: Economy To See 'Noticeable' Slowdown

Federal Reserve Chairman says growth of the U.S. economy would slow in the October-December quarter and remain sluggish during the January-March quarter.

WASHINGTON (Kyodo) β€” Federal Reserve Chairman Ben Bernanke said Thursday the growth of the U.S. economy would slow ''noticeably'' in the October-December quarter and remain sluggish during the January-March quarter.
 
Bernanke made the remarks in his testimony before the Joint Economic Committee of the U.S. Congress.
 
''Overall, the committee expected that the growth of economic activity would slow noticeably in the fourth quarter from its third-quarter rate,'' the central bank chief said. ''Growth was seen as remaining sluggish during the first part of next year, then strengthening as the effects of tighter credit and the housing correction began to wane.''
 
Despite the Fed's interest rate cuts and other measures, ''the market for nonconforming mortgages remained significantly impaired, and survey information suggested that banks had tightened terms and standards for credit products over recent months.
 
''In part because of the reduced availability of mortgage credit, the contraction in housing-related activity seemed likely to intensify,'' Bernanke said. ''Indicators of overall consumer sentiment suggested that household spending would grow more slowly, a reading consistent with the expected effects of higher energy prices, tighter credit, and continuing weakness in housing.''
 
The Fed lowered its key short-term target rate by 0.25 percentage point to 4.50 percent on Oct. 31 for the second straight time of credit easing in a bid to prevent the nation from sliding into a recession.
 
The decision, made at the end of a two-day gathering of the policy-setting Federal Open Market Committee, came after the central bank cut its federal funds rate an aggressive half percentage point to 4.75 percent a month earlier for the first decline in the base rate in more than four years.
 
''Recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation,'' the Fed said in a statement after the FOMC meeting. ''In this context, the committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.''
 
''After this action, the upside risks to inflation roughly balance the downside risks to growth,'' it said, suggesting further rate cuts are far from a sure bet.
 
Despite the Fed's action, subprime mortgage woes remain unresolved, with major U.S. financial institutions expanding write-downs on potential losses arising from such troubles.
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