Ben Bernanke Spells Out Economic Woes To Congress
By Barry Wood
15 July 2008
Federal Reserve Board Chairman Ben Bernanke Spells out Economic Woes to Congress
Federal Reserve Board Chairman Ben Bernanke says the U.S. economy is facing numerous difficulties amid a continuing downturn in housing, high oil prices, and renewed turmoil in financial markets.
In an appearance before the Senate Banking Committee, Bernanke made clear that monetary policy is aimed at keeping the economy growing and fighting inflation. He gave no indication of future moves in interest rates.
The central bank chief told lawmakers the woes besetting the economy are more severe than they have been for several years, and as a result economic growth will be slower than earlier anticipated.
"Over the remainder of this year output is likely to expand at a pace appreciably below its trend rate, primarily because of continued weakness in housing markets, elevated energy prices and weak credit conditions," said Ben Bernanke. "Growth is projected to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery and as credit conditions gradually improve."
Bernanke was asked about the government's rescue of two federally chartered agencies that are the biggest players in the residential mortgage market. He defended the plan to offer assistance to the agencies, known as Fannie Mae and Freddie Mac, and called for Congress to enact legislation that will strengthen public oversight of both entities.
Bernanke said the economic outlook has downside risks mainly because of uncertainty about future oil prices, which are up 50 percent this year and 500 percent since the beginning of the decade.
"Our best judgment is that this surge in prices has been driven predominately by strong growth in underlying demand and tight supply conditions in global oil markets," he said. "Over the past several years the world economy has expanded at is fastest pace in decades, leading to substantial increases in the demand for oil."
Bernanke said a weak dollar may have contributed somewhat to the sharp rise in oil.
Meanwhile, the U.S. Labor Department reported soaring costs for gasoline and food pushed producer prices up by 1.8 percent in June and 9.2 percent during the past 12 months, the biggest increase since 1981.
At the same time the dollar reached a record low against the euro, a currency used by 15 European Union countries.