US Fed chairman sees economy sluggish into ‘08

08 November 2007 17:37  [Source: ICIS news]

WASHINGTON (ICIS news)--Federal Reserve Board Chairman Ben Bernanke said on Thursday that the US housing crisis will slow fourth quarter economic growth and is likely to continue to inhibit the country’s commercial health into next year.

 

Testifying before the Joint Economic Committee in Congress, Bernanke said that turmoil in financial markets triggered by the collapse of the subprime mortgage sector “has significantly affected the Federal Reserve’s outlook for the broader economy”.

 

Bernanke said that financial experts at the Fed - the US central bank - had at first seen little spill-over into the general US economy from the housing sector decline.

 

“Strong growth in consumer spending in the third quarter was supported by gains in employment and income, and businesses increased their capital spending at a solid pace,” he noted.  “A strong global economy stimulated foreign demand for US-produced goods and services.”

 

Now, however, he said Fed economists “do not see the recent growth performance as likely to be sustained in the near term”.

 

“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,” he said.

 

Consumer spending is the principal driving force of the US economy, accounting for as much as 70% of business activity.

 

“Most businesses appeared to enjoy relatively good access to credit, but heightened uncertainty about economic prospects could lead business spending to decelerate as well,” he added.

 

Overall, he said, the Fed expects “that the growth of economic activity would slow noticeably in the fourth quarter from its third quarter rate”.

 

“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 begin to wane,” he said.

 

However, Bernanke cautioned, “further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity.”

By: Joe Kamalick
+1 713 525 2653

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