The head of the U.S. Federal Reserve
Board, Ben Bernanke, Wednesday told a congressional committee that the subdued
pace of U.S. economic expansion should pick up slightly in the months ahead.
VOA's Barry Wood has more on his testimony.
While some economists fear that higher oil prices and a weak housing sector
could trigger recession, Federal Reserve Chairman Bernanke disagrees. He further
suggests that the inflationary impact of a three-year-long increase in oil
prices is being contained. He told the congressional panel he expects growth
will gain momentum during the remainder of this year.
"The central tendency of the growth forecasts, which are conditioned on the
assumption of appropriate monetary policy, is for real gross domestic product to
expand by 2.25 to 2.5 percent this year and 2.5 to 2.75 percent in 2008," said
Bernanke. "The forecasted performance for this year is about one quarter percent
below what was expected in [last] February."
Slower growth over the past year, he said, results from weakness in housing.
In his appearance before the House Financial Services Committee, Bernanke
gave no indication that short-term interest rates would be moving either higher
or lower. They have been held steady at 5.25 percent by the central bank for
over a year.
Concerning housing, Bernanke said prices are likely to remain weak for some
time and there will be more foreclosures on properties where borrowers cannot
meet their monthly payments.
The international economy, said Bernanke, is strong and likely to remain so.
When asked whether China should float and revalue its currency - something many
members of Congress have long been pressing China to do - the Federal Reserve
chairman unhesitatingly answered yes. It is, said Bernanke, in China's own
interest to have a stronger currency.
"Without a flexible exchange rate, they're unable to run an independent
monetary policy," he said. "And they're having some issues now with a bit of
inflation and some asset price changes that may reflect excess liquidity in
their system.That's a potential problem down the road."
Because China's trade surplus is so high, the foreign currency it has
accumulated boosts the domestic money supply, raising the risk of inflationary
pressure on the economy.
Referring to America's large trade deficit, Bernanke said while it poses no
immediate problem efforts must be made to narrow the trade imbalance.