US Fed chief sees tough times, eyes rate cuts

27 February 2008 17:22  [Source: ICIS news]

WASHINGTON (ICIS news)--Central bank chief Ben Bernanke said on Wednesday that the US economy is in for still more slow-growth quarters and hinted that the Federal Reserve will again cut interest rates despite increasing inflationary pressures.

 

Bernanke, chairman of the Federal Reserve Board, told the House Financial Services Committee that “The economic situation has become distinctly less favourable since the time of our July report”, his earlier semi-annual economic evaluation for Congress.

 

Although US gross domestic product (GDP) output held up well through the third quarter last year, “it has since slowed sharply”, Bernanke said. 

 

He said too that “the housing market is expected to continue to weigh on economic activity in coming quarters”.

 

“Homebuilders, still faced with abnormally high inventories of unsold homes, are likely to cut the pace of their building activity further, which will subtract from overall growth and reduce employment in residential construction and closely related industries,” Bernanke said.

 

One of the upstream industries affected by the ongoing US housing downturn is chemicals manufacturing. New home construction is a major downstream consumer of a wide variety of chemicals and chemicals-based products.

 

As Bernanke spoke to Congress, the Commerce Department reported that sales of new single-family homes fell nearly 3% in January from December and were nearly 34% below the pace of new home sales in January 2007.

 

Bernanke also noted that US consumer spending - the principal driving force of the nation’s economy, accounting for as much as 70% of commercial activity - “appears to have slowed significantly toward the end of the year”.

 

On the business side, he said that “available indicators suggest that investment in equipment and software will be subdued during the first half of 2008”.  Business purchases of equipment is another key downstream sector for chemicals.

 

Although he cited increasing price pressures for American consumers in fuel, food and other daily needs, Bernanke indicated that “downside risks to growth” are more pressing, suggesting that the central bank will shave interest rates still further at its 18 March meeting.

 

He said that as that rate-setting meeting date approaches, the Fed “will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth ant do provide adequate insurance against downside risks”.

By: Joe Kamalick
+1 713 525 2653

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